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## Microeconomics

### Course: Microeconomics>Unit 6

Lesson 3: Production and costs in the long run

# Long-run average total cost curve

In this video we explore the long run average total cost curve and how average costs vary when all inputs can be adjusted.

## Want to join the conversation?

• At , are these curve shapes based on assumptions of how these costs usually look?
• The shape of each curve is u-shaped which reflects that average total cost decreases and then increases. Initially, average total costs decrease because you are spreading out the fixed cost of production over more and more units. But as you produce more, increasing marginal costs eventually over take the lower average fixed costs and start to increease the cost per unit.
• At , why are the minimum points for the short-run ATCs (average total costs) for 1 and 3 trucks higher than the short-run ATC for 2 trucks? Aka, why is the long-run ATC a curve with a minimum point? My intuition says you could be just as efficient with 1 or 3 trucks selling 100 or 300 tacos (respectively) as you could with 2 trucks selling 200 tacos, because you have the same ratio of trucks to tacos. Where am I going wrong on my assumption?
• Is the short run from a fixed point? Or is it from a specific point in time? For example can you say at t=0 to t=5 is the long run and at t=4 to t=5 that is a short run scenario ?
• The short run is not from a fixed point or a specific point in time. It is an expression economist use to identify a period in which one input is fixed and the others are variable (one cannot be changed, the others can). In the long run, all variables can be changed.
For example, if I am a business owner, my rent is fixed, meaning that I cannot change it. With that, I can change my cost/pricing/amount of production that I can do. In that case, I would be in the "short run."
Now in the future, I can choose to relocate where my business is operating, so rent is no longer fixed, since that is a variable I can change. Therefore, all my business inputs can be changed, meaning I'm in the "long-run."
I hope this helps.