Reasons for the existence of different production runs:

Whenever a market situation changes a firm has to make a new decision

so as to maximize wealth.
At the beginning
The firm is uncertain if the change in the
market situation is temporary or permanent.
It will make only the minimal and necessary
change
in factors to minimize cost.
Afterwards
Even if the change is certain to be
permanent,
the adjustment in factors should still be
slow and gradual because hasty change
involves a larger cost.

Sr and lr cost

Cost functions
TOTAL COST TC = FC + VC
FIXED COST - stays constant no matter what
level of output
VARIABLE COST - vary with the level of output

Cost concepts
Marginal cost = the extra or additional cost of
producing 1 extra unit of output
Average cost (unit costs) concept that
enables a firm to dicern whether or not it is
making a profit (compared with price or
average revenue)

Sr cost
Short run cost
Period of time in which the quantity of at least
one input is fixed and the quantities of the other
inputs can be varied

Short-run cost curves

MC
EUR/Q
AC

AVC

AFC

q*

Long run cost

The long run, during which all inputs
are variable
Period of time in which the quantities of all inputs
can be varied.

Lr curve
the long-run cost curves depends on
production function also therefore, depends
on the returns to scale
the long-run average cost (LAC) curve is called
envelope curve, because it wraps around the
outside of all the short-run curves
LMC can be derived from the LAC also goes
through the minimum point of the LAC and
has a gentler slope than the short-run SMC at
the minimum point