Long-run Cost-output Relations


By definition, in the long-run, all the inputs become variable. The variability of inputs is based on the assumption that, in the long run, supply of all the inputs, including those held constant in the short-run, becomes elastic. The firms are, therefore, in a position to expand the scale of their production by hiring a larger quantity of all the inputs. The long-run cost-output relations, therefore, imply the relationship between the changing scale of the firm and the total output; conversely in the short-run this relationship is essentially one between the total output and, the variable cost (labour). To understand  the long-run cost ­output relations and to derive long-run cost curves it will be helpful to imagine that a long run is composed of a series of short-run production decisions. As a’ corollary of this, long-run cost curves are composed of a series of short-run cost curves.

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