producing any level of output.
174 7 • Production, Costs, and Industry Structure

7.5 Costs in the Long Run

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Calculate long run total cost

•

•

Identify economies of scale, diseconomies of scale, and constant returns to scale

Interpret graphs of long-run average cost curves and short-run average cost curves

• Analyze cost and production in the long run and short run

The long run is the period of time when all costs are variable. The long run depends on the specifics of the firm

in question—it is not a precise period of time. If you have a one-year lease on your factory, then the long run is

any period longer than a year, since after a year you are no longer bound by the lease. No costs are fixed in the

long run. A firm can build new factories and purchase new machinery, or it can close existing facilities. In
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