Production costs - Economic theory (Vasilieva E.V.). Average and marginal costs

Long-run average costs

At constant resource prices economies of scale determines the dynamics of costs in long term. After all, it is he who shows whether increasing production capacity leads to decreasing or increasing returns.

It is convenient to analyze the efficiency of resource use in a given period using the LATC long-term average cost function. What is this function? Let's assume that the Moscow government is deciding on the expansion of the city-owned AZLK plant. With available production capacity cost minimization is achieved with a production volume of 100 thousand cars per year. This state of affairs is reflected by the short-term average cost curve ATC 1, corresponding to a given scale of production (Fig. 6.15). Let the introduction of new models, which are planned to be released jointly with Renault, increase the demand for cars. The local design institute proposed two plant expansion projects, corresponding to two possible production scales. Curves ATC 2 and ATC 3 are the short-run average cost curves for this large scale of production. When deciding on the option to expand production, the plant management, in addition to taking into account the financial possibilities of investment, will take into account two main factors - the size demand and meaning costs, with which the required volume of production can be produced. It is necessary to select a production scale that will ensure that demand is met at minimum cost per unit of production.

Rice. 6.15.Long-run average cost curve for a specific project

Here, the points of intersection of adjacent short-term average cost curves (points A and B in Fig. 6.15) are of fundamental importance. By comparing the production volumes corresponding to these points and the magnitude of demand, the need to increase the scale of production is determined. In our example, if the demand does not exceed 120 thousand cars per year, it is advisable to carry out production at the scale described by the ATC 1 curve, i.e. at existing facilities. In this case, the achievable unit costs are minimal. If demand increases to 280 thousand cars per year, then the most suitable plant would be with a production scale described by the ATC 2 curve. This means that it is advisable to carry out the first investment project. If demand exceeds 280 thousand cars per year, a second investment project will have to be implemented, i.e. expand the scale of production to the size described by the ATC 3 curve.

In the long term, there will be enough time to implement any possible investment project. Therefore, in our example, the long-term average cost curve will consist of successive sections of short-term average cost curves up to the points of their intersection with the next such curve (thick wavy line in Fig. 6.15).

Thus, each point of the curve long-term costs LATC determines the minimum achievable unit cost for a given production volume, taking into account the possibility of changes in production scale.

In the extreme case, when for any amount of demand a plant of the appropriate scale is built, i.e. There are infinitely many short-term average cost curves; the long-term average cost curve changes from a wave-like one to a smooth line that goes around all the short-term average cost curves. Each point on the LATC curve is a point of tangency with a specific ATC curve n (Fig. 6.16).

The firm's costs in the long run

In the long-term (long-term) period, all factors of production are variable, so the company strives to organize production at the “required scale”, ensuring production with minimal long-term average total costs (LATC - longtime average total cost).

Long-Run Average Cost Curve- a curve that envelops an infinite number of short-term average total production cost curves that touch it at their minimum points. The LATC average long-term cost curve is formed on the basis of short-term cost curves for different production volumes (Fig. 8.3.1). The long-run average cost curve shows the lowest cost per unit of production at which any level of output can be achieved, provided that the firm has time to change all factors of production.

Three segments can be distinguished on the LATC curve (Fig. 8.3.2). In the first of them, long-term average costs are reduced, in the third, on the contrary, they increase. In the second intermediate segment, approximately the same level of costs per unit of production is observed at different meanings volume of production. The arcuate nature of the long-term average cost curve (the presence of decreasing and increasing sections) is explained by the effects of scale of production.

Rice. 8.3.1. Long-Run Average Cost Curve

Rice. 8.3.2. Average costs of a firm in the long run

Positive economies of scale occur when a firm's long-run average costs fall as output increases. Positive economies of scale- this is a significant decrease in the average production costs of the company as production increases. The manifestation of this effect is facilitated by the specialization of resources and the division of labor, which increases the productivity of all factors, the improvement of technology, production automation, management specialization, etc. Diseconomies of scale occurs when long-run average costs rise faster than output. It may be due to the fact that as the company expands, the bureaucratization of management personnel increases and, as a result, production efficiency gradually decreases. In the case where an increase in the scale of production does not affect the level of long-term average costs, we speak of permanent effect scale of production. Constant economies of scale occurs if the firm's long-term average costs do not depend on changes in the volume of output

As follows from Figure 8.3.1., with production volume Q 2, the long-term average cost curve LATC reaches a minimum. This value corresponds to the scale of production at which the highest savings are achieved. Minimum efficient scale of production– smallest size enterprise that allows the firm to minimize its long-run average costs.

The minimum efficient scale of production, in turn, determines the maximum possible number of efficiently operating firms required to satisfy the demand for a particular product. If the minimum efficient scale of production is equal to the entire value market demand(Q D), then the market will be monopolized by one large firm (natural monopolist) (Fig. 8.3.3). If it is several times less than the demand, then there will be several medium-sized firms on the market. If the minimum efficient scale of production is incomparably small in relation to the size of market demand, then many small firms will operate in the market.

The main feature of costs in the long run is the fact that they are all variable in nature - the firm can increase or reduce capacity, and it also has enough time to decide to leave a given market or enter it by moving from another industry. Therefore, in the long run, average fixed and average variable costs are not distinguished, but average costs per unit of production (LATC) are analyzed, which in essence are also average variable costs.

To illustrate the situation with costs in the long run, consider conditional example. Some enterprise for quite a long time long period expanded over time, increasing the volume of its production. The process of expanding the scale of activity will be conditionally divided into three short-term stages within the analyzed long-term period, each of which corresponds to different enterprise sizes and volumes of output. For each of the three short-term periods, short-term average cost curves can be constructed for different enterprise sizes - ATC 1, ATC 2 and ATC 3. The general average cost curve for any volume of production will be a line consisting of external parts all three parabolas - graphs of short-term average costs.

In the example considered, we used a situation with a 3-stage expansion of the enterprise. A similar situation can be assumed not for 3, but for 10, 50, 100, etc. short-term periods within a given long-term period. Moreover, for each of them you can draw the corresponding ATS graphs. That is, we will actually get a lot of parabolas, a large set of which will lead to the alignment of the outer line of the average cost graph, and it will turn into a smooth curve - LATC. Thus, long-run average cost (LATC) curve represents a curve that envelops an infinite number of short-term average production cost curves that touch it at their minimum points. The long-run average cost curve shows the lowest cost per unit of production at which any level of output can be achieved, provided that the firm has time to change all factors of production.

In the long run there are also marginal costs. Long Run Marginal Cost (LMC) show the change in the total amount of costs of the enterprise due to a change in output volume finished products per unit when the firm is free to change all types of costs.

The long-run average and marginal cost curves relate to each other in the same way as the short-run cost curves: if LMC lies below LATC, then LATC falls, and if LMC lies above laTC, then laTC rises. The rising portion of the LMC curve intersects the LATC curve at the minimum point.

There are three segments on the LATC curve. In the first of them, long-term average costs are reduced, in the third, on the contrary, they increase. It is also possible that there will be an intermediate segment on the LATC chart with approximately the same level of costs per unit of output at different values ​​of output volume - Q x. The arcuate nature of the long-term average cost curve (the presence of decreasing and increasing sections) can be explained using patterns called positive and negative effects of increased scale of production or simply scale effects.

The positive effect of scale of production (the effect of mass production, economies of scale, increasing returns to scale of production) is associated with a decrease in costs per unit of production as production volumes increase. Increasing returns to scale of production (positive economies of scale) occurs in a situation where output (Q x) grows faster than costs rise, and therefore the enterprise's LATC falls. The existence of a positive effect of scale of production explains the descending nature of the LATS graph in the first segment. This is explained by the expansion of the scale of activity, which entails:

1. Increased labor specialization. Labor specialization presupposes that diverse production responsibilities are divided between different employees. Instead of carrying out several different production operations at the same time, which would be the case with a small-scale enterprise, in conditions of mass production each worker can limit himself to one single function. This results in an increase in labor productivity and, consequently, a reduction in costs per unit of production.

2. Increased specialization of managerial work. As the size of an enterprise grows, the opportunity to take advantage of specialization in management increases, when each manager can focus on one task and perform it more efficiently. This ultimately increases the efficiency of the enterprise and entails a reduction in costs per unit of production.

3. Effective use capital (means of production). The most efficient equipment from a technological point of view is sold in the form of large, expensive kits and requires large production volumes. The use of this equipment by large manufacturers allows them to reduce costs per unit of production. Such equipment is not available to small firms due to low production volumes.

4. Savings from using secondary resources. A large enterprise has more opportunities to produce by-products than a small company. Large company Thus, it makes more efficient use of the resources involved in production. Hence the lower costs per unit of production.

The positive effect of scale of production in the long run is not unlimited. Over time, the expansion of an enterprise can lead to negative economic consequences, causing a negative effect of scale of production, when the expansion of the volume of a company's activities is associated with an increase in production costs per unit of output. Diseconomies of scale occurs when production costs rise faster than production volume and, therefore, LATC rises as output increases. Over time, an expanding company may encounter negative economic facts caused by the complication of the enterprise management structure - the management floors separating the administrative apparatus and the production process itself are multiplying, top management turns out to be significantly distant from production process at the enterprise. Problems arise related to the exchange and transmission of information, poor coordination of decisions, and bureaucratic red tape. The efficiency of interaction between individual divisions of the company decreases, management flexibility is lost, control over the implementation of decisions made by the company's management becomes more complicated and difficult. As a result, the operating efficiency of the enterprise decreases and average production costs increase. Therefore, when planning its production activities, a company needs to determine the limits of expanding the scale of production.

In practice, cases are possible when the LATC curve is parallel to the x-axis at a certain interval - on the graph of long-term average costs there is an intermediate segment with approximately the same level of costs per unit of output for different values ​​of Q x. Here we are dealing with constant returns to scale of production. Constant returns to scale occurs when costs and output grow at the same rate and, therefore, LATC remains constant at all output levels.

The appearance of the long-term cost curve allows us to draw some conclusions about optimal size enterprises for different industries economy. Minimum effective scale (size) of an enterprise- the level of output from which the effect of savings due to an increase in the scale of production ceases. In other words, we're talking about about such values ​​of Q x at which the company achieves the lowest costs per unit of production. The level of long-term average costs determined by the effect of economies of scale affects the formation of the effective size of the enterprise, which, in turn, affects the structure of the industry. To understand, consider the following three cases.

1. The long-term average cost curve has a long intermediate segment, for which the LATC value corresponds to a certain constant (Figure a). This situation is characterized by a situation where enterprises with production volumes from Q A to Q B have the same cost. This is typical for industries that include enterprises of different sizes, and the level of average production costs for them will be the same. Examples of such industries: wood processing, timber industry, food production, clothing, furniture, textiles, petrochemical products.

2. The LATC curve has a fairly long first (descending) segment, in which there is a positive effect of production scale (Figure b). The minimum cost is achieved with large production volumes (Q c). If the technological features of the production of certain goods give rise to a long-term average cost curve of the described form, then large enterprises will be present in the market for these goods. This is typical, first of all, for capital-intensive industries - metallurgy, mechanical engineering, automotive industry, etc. Significant economies of scale are also observed in the production of standardized products - beer, confectionery and so on.

3. The falling segment of the long-term average costs graph is very insignificant; the negative effect of scale of production quickly begins to work (Figure c). In this situation, the optimal production volume (Q D) is achieved with a small volume of output. If there is a large-capacity market, one can assume the possibility of the existence of many small enterprises producing this type products. This situation is typical for many industries of light and Food Industry. Here we are talking about non-capital-intensive industries - many types retail, farms and so on.

Production costs in the long run have one feature, since they are variable in nature. In this case, the enterprise can increase or reduce capacity, while it has sufficient quantity time to make a decision to leave the market or enter it by moving from other industries.

Production costs in the long run are not divided into average constants and average variables; average costs are analyzed for each unit of production. They are at the same time both average and variable costs. If we consider three short-term periods, then graphs of short-term average costs are built, and the average cost curve for any volume of output will be a line consisting of three parabolas, including graphs of short-term average costs. Thus, we get a schedule of average costs in the long run.

Long-Run Average Cost Curve

The long-run average cost curve is a curve that follows an infinite number of short-run average cost schedules. Graphs of short-term average costs touch the average cost curve at minimum points.

Thus, the long-run cost curve can reflect minimum costs for the production of a unit of product, which ensures any volume of production with the condition that the enterprise has time to change all production factors.

The long run also has marginal costs. Long-term marginal costs can reflect a change in the company's total costs due to a change in the volume of finished goods produced per unit when the company is free to change all types of costs. Long-run average and marginal cost curves can be related to each other in the same way as short-run cost curves. Part of the marginal cost curve increases and crosses the long-run average cost curve at the minimum point.

Economies of scale

The curve reflecting production costs in the long run is characterized by three segments. The first segment is characterized by long-term average costs, which are decreasing. On the second they will be constant, on the third they will increase.

There are situations when there is an intermediate segment on the graph with approximately the same level of costs per unit of production at different meanings output volume. The long-term average cost curve has an arcuate character, it has a decreasing and increasing section, which is explained by the pattern of positive and negative effects of increasing scale of production.

A positive scale effect reflects a conditional increase in the scale of production. This is due to a decrease in unit costs as the volume of manufactured products increases.

The value of economies of scale

Positive economies of scale (growing, increasing returns to production) occur when volumes grow faster than costs rise. Consequently, the average costs of the enterprise will fall. This situation that exists at the enterprise is explained by the descending nature of the straight line in the first segment. This may lead to the following situations:

1. increased specialization of labor (productivity increases, costs fall),
2. increasing specialization of managerial work,
3. most effective application basic and working capital and capital (the factor is more accessible to large enterprises than to small firms),
4. savings from using secondary resources

Examples of problem solving

EXAMPLE 1

Goals and objectives solved by a company when entering the market in a short-term time interval.

The firm evaluates its behavior as a business unit by comparing different kinds income and costs. This is especially true for the behavior of a company in the short term. When entering the market, a company asks the following basic questions:

Should the product be manufactured and brought to market?

How much (what quantity) should the product be produced?

What profit or loss will the firm receive from selling this quantity of product?

The answer to the first question is yes, if as a result of the production and sale of a certain amount of products, positive economic profit, or losses, which will be smaller in magnitude fixed costs(TFC). At zero output, the firm incurs losses equal to TFC.

Answer to the second question: it is necessary to produce such a quantity of a product, the sale of which on the market provides the company with maximum profits or minimum losses.

Answer to the third question: it is necessary to consider specific situations of the relationship between income and costs in which maximizing profits or minimizing losses is possible.

9.6.Effect of scale and firm costs over a long-term time interval.

In the long run all the firm's resources are variable. The company can hire new equipment, rent new workshops, change the composition of management personnel, use new technology production.

The lack of permanent resources in the long term leads to the fact that the difference between fixed and variable costs disappears. Analysis of the long-term activities of the company is carried out through consideration of the dynamics long-run average cost(LATC). And the main goal of the company in the area of ​​costs can be considered the organization of production of the “required scale”, providing a given volume of production with minimum average costs.

Scope of the company's activities– dependence of the increase in production volume on the increase in the use of all factors of production over a long-term time interval.

Economies of scale– savings due to an increase in the scale of the firm’s activities, manifested in a reduction in long-term average costs.

To construct long-run average costs, assume that

a firm can organize production of three sizes: small, medium and large, each of which has its own short-term average cost curve (SATC1, SATC2, SATC3, respectively), as shown in Fig. 5.

Fig.5 Long-run average cost curve.

The choice of a particular project will depend on estimates of projected market demand on the company's products and on what capacity is needed to provide it.

If the forecasted demand corresponds to Q1, then the firm will prefer to create small production, since its average costs in this case will be significantly lower than at larger enterprises. As can be seen in Figure 5, ATC1(Q1)

If demand is expected to be Q2, then project 2 (medium enterprise) will be most preferable, providing lower costs, or

ATC2(Q2)

Combining the portions of the three short-run cost curves that provide the optimal production size for each output shows us long-run average cost curve companies. In Figure 5 it is represented by a solid line.

Long-Run Average Cost Curve shows the minimum cost per unit of output produced at each possible output level.

If the number of possible sizes (Q1, Q2,...Qn) approaches infinity (), then the long-term average cost curve becomes flatter, as shown in Figure 6.

Fig. 6 Long-term average cost curve for an unlimited number of possible enterprise sizes

In this case, all points on the LATC curve are lowest average cost for a given volume of production, provided that the firm has enough time to change all the necessary resources.