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MODULE 56

Long-Run Costs and Economies of Scale

In this Module, you will learn to:

Up to this point, we have treated fixed cost as completely outside the control of a firm because we have focused on the short run. But all inputs are variable in the long run: this means that in the long run, even “fixed cost” may change. In the long run, in other words, a firm’s fixed cost becomes a variable it can choose. For example, given time, Selena’s Gourmet Salsas can acquire additional food-preparation equipment or dispose of some of its existing equipment. In this module, we will examine how a firm’s costs behave in the short run and in the long run. We will also see that the firm will choose its fixed cost in the long run based on the level of output it expects to produce.