Scribd Logo
Upload

Welcome to Scribd!

  • What Is The Modern Theory of Short Run Cost Curves

    Uploaded by

    Mayank Jha
    282 views2 pages
    The modern theory of short-run cost curves proposes that the short-run average variable cost curve is "saucer-shaped" rather than U-shaped. It has a flat stretch over a range of output where costs remain the same due to reserve capacity. The short-run average cost curve is also saucer-shaped. The long-run average cost curve is L-shaped in the modern theory due to cost reductions from large-scale production.

    Original Description:

    imp

    Original Title

    What is the Modern Theory of Short Run Cost Curves

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    The modern theory of short-run cost curves proposes that the short-run average variable cost curve is "saucer-shaped" rather than U-shaped. It has a flat stretch over a range of output where costs remain the same due to reserve capacity. The short-run average cost curve is also saucer-shaped. The long-run average cost curve is L-shaped in the modern theory due to cost reductions from large-scale production.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    282 views2 pages

    What Is The Modern Theory of Short Run Cost Curves

    Uploaded by

    Mayank Jha
    The modern theory of short-run cost curves proposes that the short-run average variable cost curve is "saucer-shaped" rather than U-shaped. It has a flat stretch over a range of output where costs remain the same due to reserve capacity. The short-run average cost curve is also saucer-shaped. The long-run average cost curve is L-shaped in the modern theory due to cost reductions from large-scale production.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 2

    12/15/13

    What is the Modern Theory of Short Run Cost Curves?

    What is the Modern Theory of Short Run Cost Curves?


    by Pragati Ghosh

    The traditional U-shape of the cost curves has been questioned by several economists. In 1939, George Stigler suggested that the short run average variable cost curve has a flat stretch over a range of output (Figure 5.12). This is so because a number of firms build their plants in such a manner that a range of output can be produced by them at

    the same average variable cost. This range of output is referred to as the reserve capacity of the firm. The short-run average variable cost is, thus, U-shaped with a flat stretch at its bottom as shown in Figure 5.12. In the modern theory, the short-run average variable cost curve is saucer-shaped.

    Fig. 5.12: In the modern theory of costs, the average variable cost curve is saucer-shaped in the short run. The flat stretch at the bottom begins at output OQ1 and continues till output OQ2. The firm can produce output Q1Q2 at the same AVC, which is the lowest. The AFC curve, in modern theory, remains the same as that in the traditional theory. The short run AC, therefore, looks like one in Figure 5.13.
    www.shareyouressays.com/116768/what-is-the-modern-theory-of-short-run-cost-curves 1/4

    12/15/13

    What is the Modern Theory of Short Run Cost Curves?

    The long run AC in modern theory is L-shaped as shown in Figure 5.14. This is so due to reductions in the production costs when a large volume of output is produced.

    The large scale production leads to heavy cost cuts because of discounts the firm is able to get for bulk purchases of raw materials and advanced technology, highly qualified workforce and managerial staff the firm is capable of engaging. Related Essays: 1. 2. 3. 4. 5. 6. 7. 8. Article on the Modern Means of Entertainment in Hindi Essay on Modern Technique of Education in Hindi Paragraph on the Modern Means of Entertainment in Hindi Essay on Importance of Games in the Modern Age in Hindi Essay on Modern Educational System in Hindi Essay on Computer Demand of the Modern Age in Hindi Speech on Modern Meera: Srimati Mahadevi Varma in Hindi Essay on The Student Life Ancient and Modern and its Pleasure in Hindi

    , Essay on Theory
    <

    Relationship between Average Cost, Average Variable Cost, and Marginal Cost in Short-Run Mathematical Relationship between Units of Output and Units of Input of a Product
    >

    www.shareyouressays.com/116768/what-is-the-modern-theory-of-short-run-cost-curves

    2/4

    You might also like