(6) The Link Between Short and Long Run Cost
Short Run Cost, Long Run Cost, Planning Curve, Operating Decisions, Planning Decisions, Long Run Average Total Cost, Menu of Choices, Envelope Curve
This explains the connection between the Short Run Average Total Cost Curves and the Long Run Average Total Cost Curve. The distinction between operating and planning decisions is established, as is the fact that every Short Run Average Total Cost Curve is based on some given level of fixed inputs. The Long Run Average Total Cost Curve is shown to be a collection of the "better spots" on a collection of Short Run Average Total Cost Curves, one for each level of assumed fixed inputs.
Crane, Steven E., "(6) The Link Between Short and Long Run Cost" (2011). Principles of Microeconomics. Paper 45.
Ability to explain the difference between the Short Run and the Long Run Average Total Cost Curve. Ability to recognize and construct a graph showing the linkage between the Short and Long Run Average Cost Curves.
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