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Costs in the long run

Long run costs are accumulated when firms change production levels over time in response to
expected economic profits or losses. The long run is a planning and implementation stage for producers.
They analyze the current and projected state of the market in order to make production decisions.
Efficient long run costs are sustained when the combination of outputs that a firm produces results in
the desired quantity of the goods at the lowest possible cost. It can be also termed as the least possible
cost of producing any given level of output when all inputs are variable. LTC is always less than or equal
to short run total cost, but it is never more than short run cost.

Economies of Sale

These are the costs that are incurred by companies when production becomes efficient.
Economies of scale are an important concept for any business in any industry and represent the cost-
savings and competitive advantages larger businesses have over smaller ones. The cost per unit depends
on how much the company produces hence it is an advantage for large companies. They are able to
produce more by spreading the cost of production over a larger amount of goods. The main point is, as
the scale of the firm increases, capital substitutes for labor and complex machines.

Diseconomies of Sale

This happens when a company or business grows so large that the costs per unit increase. It
takes place when economies of scale no longer function for a firm. With this principle, rather than
experiencing continued decreasing costs and increasing output, a firm sees an increase in costs when
output is increased. Diseconomies of scale specifically come about due to several reasons, but can be
broadly categorized as internal or external. Internal diseconomies of scale can arise from technical
issues of production or organizational issues within the structure of a firm or industry. External
diseconomies of scale can arise due to constraints imposed by the environment within which a firm or
industry operates. Essentially, diseconomies of scale are the result of the growing pains of a company.

LONG-RUN AVERAGE COST CURVE

Long-run average cost is the per unit cost incurred by a firm in production when all inputs are
variable. In particular, it is the per unit cost that results as a firm increases in the scale of operations by
not only adding more workers to a given factory but also by building a larger factory.

*examples and broader explanations will be cited during the actual reporting

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