Production and Cost Fixed Cost Essay

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There is a fixed amount of output possible for any given investment in production capacity, at all possible costs, and if we plot all the potential scales of output against the resulting average cost per unit of production, the result is a long run average total cost curve (LRATC). These economies and diseconomies of scale cause the LRAC to fall from a high origin to a minimum point, and then (theoretically) eventually begin to rise, where there is a minimum where slope is zero. This is the optimum enterprise scale (Petroff, 2002 n. pag.).

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Each combination of output and average per-unit cost represents a discrete, short-term, short-run ATC curve for that level of production, and optimum firm size is the SRATC curve where unit cost is minimal (7 units at 32$ each, in Table 6), the MC cost curve crosses both LRATC and SRATC, no other firms enter to capture extraordinary profit, and the firm reaches equilibrium at optimal efficiency. Table 6 demonstrates.

Table 6: Output per unit, LRATC

# units

ATC / unit

MC

SRATC

1

2

60.....

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