Explain the long-run costs.

1.	Explain the long-run costs.
Answer» In the long run, all inputs are variable. There are no fixed costs, The total cost and the total variable cost coincide in the long run. There are two types of long-run costs. They are as follows: a. Long-run average cost (LRAC): The long-run average cost is the cost per unit of output produced. It is obtained by dividing the total cost by the output produced. It can be calculated as follows: LRAC = TC/q Where, TC is total cost and ‘q’ is quantity of output produced. b. Long-run marginal cost: The long-run marginal cost is the change in total cost per unit of change in output. When output changes in discrete units, then, if we increase production from q₁ – 1 to q₁ units of output, the marginal cost of producing q₁^th unit will be measured as follows: LRMC = (TC at q 1 units) – (TC at q₁ -1 units) or LRMC = TC_n – TCn_-1.

Answer»

In the long run, all inputs are variable. There are no fixed costs, The total cost and the total variable cost coincide in the long run. There are two types of long-run costs. They are as follows:

a. Long-run average cost (LRAC): The long-run average cost is the cost per unit of output produced. It is obtained by dividing the total cost by the output produced. It can be calculated as follows:

LRAC = TC/q

Where, TC is total cost and ‘q’ is quantity of output produced.

b. Long-run marginal cost: The long-run marginal cost is the change in total cost per unit of change in output. When output changes in discrete units, then, if we increase production from q₁ – 1 to q₁ units of output, the marginal cost of producing q₁^th unit will be measured as follows: LRMC = (TC at q 1 units) – (TC at q₁ -1 units) or LRMC = TC_n – TCn_-1.

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