Answer to Question #83043 in Macroeconomics for Baasanjargal Dashdorj

Question

3. a. Using isoquants and isocost lines, show why a lower level of output in the short-run will always cost more than in the long run. Be sure to explain your graph.

b. Provide a short explanation (in words only) why this true. Be sure to reference the difference between production decisions in the short run and long run.

Answer 1

3. For a given level of output–that is, for a given isoquant–the firm minimises its total costby choosing the lowest isocost line that just touches, or is tangential to, the isoquant. The least-cost combination of resources will depend on the productivity of resources and the relative costof resources.

4. Economies of scale are the cost advantages from expanding the scale of production in the long run. In the long run all costs are variable and the scale of production can change, because there is no fixed inputs.

Sources:

1) https://www.tutor2u.net/economics/reference/long-run-average-cost-lrac

2) https://www.scribd.com/document/39280410/Isoquant-and-Isocost