| In the Long Run, what can happen their Short Run Average Cost? (SRAC: This is just AC) | -Since all Factors of Production are Variable, Firms can have the potential to boost Productivity.
-So, SRAC can shift Downwards and Right. South East.
-SRAC will however have an AC where it can’t go lower, which can be the most Productive Efficient Point. |
| What is the Firm’s Long Run Average Cost? | -LRAC shows off the Minimum AC at each level of Production.
-It follows the lowest Point of each SRAC.
-LRAC can show the Point where the Firm’s Maximum Productive Efficient point is. Just how SRAC is a U Shape, an LRAC is too. |
| How is the Shape of the LRAC determined? | -Average Costs will Fall, when Output rises. This occurs when a Firm has Internal Economics of Scale.
-Average Costs Rise, when output rises as well. This occurs when Firms has Internal Diseconomies of Scale.
-Firms can experience both Internal Economies/Diseconomies at same Output - whichever one has the Greatest effect matters here. |
| What is
1. External Economies of Scale
2. External Diseconomies of Scale | 1. This makes the LRAS fall Downwards - AC falls at ALL output levels (Technology breakthrough)
2. Forces the LRAS upwards - AC rises at ALL Output levels (Fuel Duty) |
