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Economics/Business

Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
edited March 27 in Work & Study
Im doing a module in economics, the coursework asks about the "long run average cost(LRAC) curve"

It wanted to know the 'technological' and 'economical' reasons for this.

I thought technological reasons would be computer systems, automation of production, etc. Would economical be production, distribution and maybe consumption of the product.

Perhaps somebody is better at explaining it

Any help would be gr8!
Post edited by JustV on

Comments

  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Not sure, but maybe economies of scale is an economical reason? In the long term things eventually expand bringing the average cost down.
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Pretty sure economical reason are refering to Economies of Scale and Diseconomies of Scale, this is what gives the LRAC its shape. Its position is determined by external factors.

    Not sure about the techinical side of it though. Maybe you can expand on it??

    :thumb:
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    I think I understand now, thank you! :)
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Calvin wrote: »
    Not sure about the techinical side of it though. Maybe you can expand on it??

    The LRAC usually goes down because in the long run as technology gets better then production becomes more efficient :) due to machines being superadvanced and stuff like that! :p
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    ShyBoy wrote: »
    The LRAC usually goes down because in the long run as technology gets better then production becomes more efficient :) due to machines being superadvanced and stuff like that! :p

    Would; how does technology effect the shape of the LRAC, have been a way of phrasing the question then?

    :thumb:
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    In the long run technology isnt fixed, factors can be chosen and there are no fixed costs, i.e can produce 0 and go out of business.

    It yields a graph where the short run ac curves are tangent to the long run curve. Can you post the specific question?
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    minimi38 wrote: »
    In the long run technology isnt fixed, factors can be chosen and there are no fixed costs, i.e can produce 0 and go out of business.

    It yields a graph where the short run ac curves are tangent to the long run curve. Can you post the specific question?

    factors can be chosen?

    The specific question:
    Explain the technological and economic reasons for the general shape of the long run average cost curve
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    Economic reasons:

    short run curves are determiend by fixed factors of production, with each one corresponding to a level of inputs. because in the long run the firm can choose factors of production optimally the long run curve must be tangent to the optimum level of the short run curve (for the given inputs used). this occurs for all levels of output and input, so the long run curve will be tangent to all the short run curves.

    Technology reasons:

    a mentioned by others above, economies of scale then diseconomies of scale.
  • Former MemberFormer Member Posts: 1,876,323 The Mix Honorary Guru
    mrbox99 wrote: »
    factors can be chosen?

    The specific question:
    Explain the technological and economic reasons for the general shape of the long run average cost curve

    It would be important to note that a LRAC can be continuously downwards sloping in industries where economies of scale can be maintainbed. The best examples of these are natural monopolies
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