Total fixed and variable costs at a given level of output
Cost Curves
At least one factor of production is fixed in the short run in the long run all factors are variable
Diminishing Marginal Productivity
As a firm expands, the gains they receive from employing more labour decreases as resources are fixed in the short run
Long-run Average Costs
In Q1 there are increasing returns to scale thus as output increases costs fall, from Q1 to Q2 returns are constant so costs remain the same regardless of output from Q2 onwards an increase in output causes diseconomies of scale
Short Run Average Costs
Within the LRAC curve, there are many SRAC curves representing the changes in a fixed factor of production and thus costs and diminishing marginal production
Factors affecting the LRAC
-Economies of scale
-Taxes
-Technology
Minimum Efficient Scale
The minimum level of output needed for a business to exploit economies of scales fully
External Economies of Scale
Firms may move where support services are thus reducing transport costs or labour tends to be in areas where industries are e.g. Silicon Valley and can provide training or hire workers trained by firms in the same industry
