costs, and then using these calculations as a basis for average total cost, average variable cost, and marginal

cost. However, making a final decision about the profit-maximizing quantity to produce and the price to charge

will require combining these perspectives on cost with an analysis of sales and revenue, which in turn requires

looking at the market structure in which the firm finds itself. Before we turn to the analysis of market structure

in other chapters, we will analyze the firm’s cost structure from a long-run perspective.

7.4 Production in the Long Run

LEARNING OBJECTIVES

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

• Understand how long run production differs from short run production.

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7.4 • Production in the Long Run 173

In the long run, all factors (including capital) are variable, so our production function is

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