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Marshall's original introduction of long-run and short-run economics reflected the 'long-period method' that was a common analysis used by classical political economists. However, early in the 1930s, dissatisfaction with a variety of the conclusions of Marshall's original theory led to methods of analysis and introduction of equilibrium notions.
Long-run marginal cost (LRMC) is the cost function that represents the cost of producing one more unit of some good. The idealized "long run" for a firm refers to the absence of time-based restrictions on what inputs (such as factors of production) a firm can employ in its production technology. For example, a firm cannot build an additional ...
In the long run, all factors of production are variable and subject to change in response to a given increase in production scale. In other words, returns to scale analysis is a long-term theory because a company can only change the scale of production in the long run by changing factors of production, such as building new facilities, investing ...
With this assumption, we can re-express aggregate output in per capita terms (,) = (,) = For example, if we use the Cobb–Douglas production function with =, =, then () =. To obtain the first key equation of the Ramsey–Cass–Koopmans model, the dynamic equation for the capital stock needs to be expressed in per capita terms.
These factors move slowly, so that it is a reasonable approximation to take them as given in a medium-term time scale, though labour market policies and competition policy are instruments that may influence the economy's structures and hence also the medium-run equilibrium; the long run (e.g. a couple of decades or more): On this time scale ...
In economics, economic equilibrium is a situation in which the economic forces of supply and demand are balanced, meaning that economic variables will no longer change. [ 1 ] Market equilibrium in this case is a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal ...
The long-run aggregate supply curve refers not to a time frame in which the capital stock is free to be set optimally (as would be the terminology in the micro-economic theory of the firm), but rather to a time frame in which wages are free to adjust in order to equilibrate the labor market and in which price anticipations are accurate. A ...
A long-run average cost curve is typically downward sloping at relatively low levels of output, and upward or downward sloping at relatively high levels of output. Most commonly, the long-run average cost curve is U-shaped, by definition reflecting economies of scale where negatively sloped and diseconomies of scale where positively sloped.