Economics and Statistics

We have explored the concept of the costs in the short run, it is now time to determine the costs in the long run. But first, let's define the term long run. In economics, the long run occurs when all variables are not fixed. In other words, the long run for a firm is when a firm can change all of its inputs. Then, all costs are variable in the long run. In this time frame a firm is not only able to change the number of workers but also the size of its factories and the number of machines (also known as capital). In the graph below, you can see a number of different short run average total cost (SRATC) curves that depend on the different levels of fixed inputs. At first, the SRATC curves get lower as the firm increases its size, then it flattens out. Finally,  the SRATC curves get higher. These three effects are caused by different economies of scale. The leftward region on the graph represents the economy of scale, where by increasing each input by a constant increas...