The Long Run Average Cost Curve as the Lower Envelope of our Short Run Average Cost Curves
Жүктеу.....
Пікірлер: 51
@Chashi007 Жыл бұрын
This is an absolute deal breaker. This is by far the best explanation of how to derive LRAC from SRACs. I will share this with my UG students. Thanks a million !!
@econhelp_official
Жыл бұрын
Thank you fellow teacher! Sometimes the videos come out on-point (not always but I try 😅) and I was happy with this one. Good luck to your class, the students sound like they’re in good hands 😎🙏👍
@doseoffaiyaz Жыл бұрын
It was hard finding a good source for this to understand. This is probably the best video that explains this so simply and yet so thoroughly. It looked scary at first but you made it easy. THANK YOU. You're a great teacher. I'm sure you bring nothing but positive externalities to this world.
@econhelp_official
Жыл бұрын
Glad it was helpful! Thanks so much for your comment, you are too kind 🙏😊 indeed economics can look scary, but mostly it’s all bark no bite if you get my drift…
@tanmaychopra4239 Жыл бұрын
You are by far the best economics teacher. I never thought I would have the opportunity to say this to someone but your explanations are even clearer than khan academy's. Thank you very much!
@econhelp_official
Жыл бұрын
Wow that's so cool! You're so lovely, thanks so much xxxoooo
@shuran72 Жыл бұрын
You are an angle! The best video for LRAC & SRAC!
@econhelp_official
Жыл бұрын
That's so nice thanks! Good luck with your study!
@mohamedabdou-salami9 ай бұрын
Was very helpful at the 11th hour of my assignment. ❤
@econhelp_official
7 ай бұрын
Aw nice! Hope your assignment went well!
@dadisecondaryschool6408 Жыл бұрын
You nailed it. Very useful and understandable 👍
@econhelp_official
Жыл бұрын
It's so special to hear a compliment from professional teachers, thanks so much!
@hasancandogan986 Жыл бұрын
I loved that your words about transformation of short run to long run average total cost curves
@econhelp_official
Жыл бұрын
Thank-you! That's really nice, hope you have a great day! :)
@hasancandogan986
Жыл бұрын
@@econhelp_official thanks for your kindness I Hope you have awesome day
@abeliangrape953 Жыл бұрын
Thank you for the clear explanation. I'm always wondering the mathematical basis for my A-level economics and your video just answers my doubts.
@econhelp_official
Жыл бұрын
You're welcome! Good to know my video is relevant for the A-levels! Thanks for the comment :)
@nikadominika9910 ай бұрын
Many thanks!!!!
@econhelp_official
10 ай бұрын
You're welcome! Thanks for the comment :)
@klockworkcanary7951 Жыл бұрын
Your videos are really well done and you're great at explaining this stuff. Thanks!
@econhelp_official
Жыл бұрын
Thanks! I really like doing the videos and the comments help me, thanks so much!
@itamarfilho3939 ай бұрын
Thank you! This video helped me very much
@econhelp_official
6 ай бұрын
I'm so glad to hear that! Thanks so much for the comment! ❤️
@labcdel43842 жыл бұрын
Commenting for the algorithm ❤️
@econhelp_official
2 жыл бұрын
😊 This made me feel so appreciated! You're the best, thanks for the support!! xx
@arikatz1233 ай бұрын
This is great thank you
@elaranibehera29148 ай бұрын
Best explanation
@econhelp_official
7 ай бұрын
Glad you think so! Thanks so much for the comment!
@user-ht8pm8fp3j
7 ай бұрын
@econhelp44 Does every SRAC touch LRAC at its minimum point?
@econhelp_official
7 ай бұрын
@@user-ht8pm8fp3j good question and nope, absolutely not. Min sr atc does not need to be on lrac and lrac does not consist of only min srac. Actually it’s only at the minimum of lrac that they will definitely be tangent. I should make a video on this point. I will put this on my list of videos to do, but feel free to email me on econmathhelp@gmail.com if you want more discussion/help or you can answer here too 😀
@user-ht8pm8fp3j
7 ай бұрын
@econhelp44 I am eager for the video on this topic! I'll try to sort it out myself and then might write to you to verify guesses. Thanks!
@econhelp_official
7 ай бұрын
@@user-ht8pm8fp3j So one interesting story about this topic is here conversableeconomist.blogspot.com/2019/12/the-story-of-viners-draftsman.html#:~:text=Viner's%20draftsman%20was%20a%20mathematician,in%20the%20figure%2C%20AC). There are really two points, the first is why SRAC is (typically) not at a minimum when it hits LRAC, and an easy response is because there is no conceptual requirement for that to be the case (there is a more thorough response which involves a discussion about minimisation and tangency, that's a longer topic, but just noting that there is no conceptual requirement for that to be the case might help). Except at the minimum of the LRAC, and to say this another way, where the LRAC is perfectly horizontal. At this point it is conceptually impossible for the SRAC curve to be at any other point other than its minimum. This is a conceptual necessity; since the minimum of the LRAC is the lowest possible ATC when all factors are variable. If SRAC was anywhere else than it's minimum at this point that would be a direct contradiction. Does that help at all?
@gsiyoum Жыл бұрын
great thanks for your detail explanation
@econhelp_official
Жыл бұрын
Glad it was helpful!
@h4ks3lr1 Жыл бұрын
Madam please don't stop such lovely video ❤❤😊
@econhelp_official
Жыл бұрын
Awwwww you’re so sweet! Thanks for the comment!
@nickiacovou2846 Жыл бұрын
Great video, well done and thanks!
@econhelp_official
Жыл бұрын
You’re welcome! I’m so glad that you liked it!! 😀
@opop180 Жыл бұрын
very helpful Thank you very much!!
@econhelp_official
Жыл бұрын
You're welcome! Thanks for the comment and good luck with your study!
@elonrog8066 Жыл бұрын
The video is on point.
@econhelp_official
Жыл бұрын
Thank you 🙏!
@potofcandies2 ай бұрын
Great video but is there a difference between productive efficiency in the long run vs productive efficiency in the short run? Is a firm that produces at the min of srac productively efficient in short run while a firm that produces on any point on lrac is productively efficient in the long run?
@econhelp_official
2 ай бұрын
Really good question, I find this stuff really difficult. Some texts identify productive efficiency with technical efficiency, some use a broader definition (I think… it’s so confusing), so even on definitions alone I find this area problematic. Best to ask your teacher/ check textbook. In my experience more advanced texts take LR equilibrium to be at min LRAC, and this is what it is to be productively efficient. More beginner texts don’t seem to differentiate between LRAC and SRAC, they just say P= min AC in the LR, and they sometimes say this is productive efficiency… hope this helps, sorry I don’t know the proper answer!
@teerex99526 ай бұрын
I think you meant for Q** the best is SRAC 6 (not 7)
@econhelp_official
6 ай бұрын
It’s 7, the labelling is just poor, I did the best I could sorry. To see it clearer count from the right hand side back. The furthest is 8, second furthest is 7, that’s the lowest srac associated with q**.
@emmanuelosakuni8647 Жыл бұрын
Nice video ma'am. I have a question though....why are the subsequent SRACs after the first positioned the way they are? For example, why is SRAC2 below SRAC1. Please respond soon
@econhelp_official
Жыл бұрын
Really good question. The short answer is that it doesn't have to, but we usually show it this way because it gives the LRAC curve a 'u' shape that has some properties that some economists find attractive. The downward sloping section (economies of scale) is often explained as follows: as firm output increases inputs to production are able to specialise (become more efficient). Alternatively, at larger scales the firm can often get discounts on our inputs to production (bulk discounts). Both effects will reduce average total costs. In some texts the downward sloping section is linked to the firm exhibiting increasing returns to scale. This would be true if the technology used to make the good was such that for any proportionate increase in the inputs, output increases more than that proportion. For instance if we double all of the inputs then we would get than double the output back. The upward sloping part (diseconomies of scale) is harder to rationalise and in different text books you see different sorts of explanations. Some texts relate the upward sloping portion of the LRAC (diseconomies of scale) to decreasing returns to scale (RTS). I find this less convincing since it would mean that the firm’s technology has changed in such a way that the production function now exhibits decreasing returns to scale (imho... why would the technology change to make things more expensive on average if we increase all inputs by some proportion??). The only thing I can think of is that perhaps it is hard to organise large scale firms, which means that the firm becomes inefficient and each marginal unit becomes more expensive. Other authors give different accounts. Varian - probably one of the more common intermediate text books attributes the u shape of LRAC to the presence of 'quasi-fixed' factors. From what I can tell, what Varian means here is that these inputs to production are 'fixed' in the sense that the firm only has a fixed amount of them (they don't vary with Q). In this sense, eventually these quasi fixed factors will lead to rising average costs as they are constrained in the same way fixed factors of production in the short run leads to rising (SR)MC and rising (SR)ATC -I'm guessing from what I gauge the text, Varian is not super clear here (I have a video on firm SR costs that explains this if you are confused). But, these quasi fixed factors are not sunk - so the firm only has to pay them if they produce some positive amount so it's not like a constraint in the short run where the firm has no choice but to have them in the particular level that has already been paid for. It's just that we need (have) them in a fixed amount. It's worth noting that the cost associated with them will be a fixed amount, and this will give us the downward sloping section as well of LRAC as well. I find Varian a bit hard to interpret here, but reading between the lines maybe this is what he might mean - as the firm expands they are going to hit some sort of constraint on their expansion (eventually). There is only so much land available, or water, or labour: nothing is infinite, and so once one of these is exhausted, it becomes 'fixed' in a sense (we call this 'quasi-fixed'). Our other factors of production then have to work around this constraint and LRMC and therefore LRAC increases. This interpretation is intuitive to me, but I think i've probably even read too much into Varian here. This argument is under section 22.5 Long-Run Costs 9th edition of Varian if you want to ever have a look. I think most texts don't offer this kind of explanation because we're in the long run and any sort of mention of constraint will just confuse students (since the defining difference between SR and LR is that all inputs are variable so there are no constraints... ). So that's a lot, but those are my thoughts, explanations do differ across different texts... Very sorry I can't offer a more simple response, hope it helped. Edit: Sorry about the edit, it’s a topic I’ve thought about before so I have lots of thoughts, my first version was jumbled.
@sannti741
Жыл бұрын
Related to your first argument with the upward sloping part, Becker says in his book that there is one factor that is finite, the owner of the firm. Contracted managers are involved in principal agent issues, so the productivity of the owner it's not replicable. You can sell part of your company but small shareholders have less incentives than one single owner to control and work in the company. PD: you are the best explaining microeconomics and your videos are so useful and clears.
@econhelp_official
10 ай бұрын
@@sannti741 I didn't know that! If you have time, which book was it? Creating the videos on this stuff is actually really interesting, because if you look at different texts often they differ (ever so slightly sometimes!) in their treatments and explanations. Sometimes we treat our models in economics as if there is only one true correct account, but actually you can get (slightly) different variations and different authors stress different things. I don't take this as problematic, just as interesting, but I do feel like if we don't acknowledge it, we miss out on acknowledging that working with models can be hard, it can be interpretative, and should be done with care. It's not just maths. Thanks for the nice comment by the way! Made my day :)
@sannti741
10 ай бұрын
@@econhelp_official it is "Economic Theory" by Gary Becker. This book has a lot of useful interpretations slightly differents. He start the book showing that is possible to get the same conclusion of the traditional consumtion problem but just with the budget constraint, the preferences are not necessary (adding some additional assumptions). Continue making videos, you are the best :)
Пікірлер: 51
This is an absolute deal breaker. This is by far the best explanation of how to derive LRAC from SRACs. I will share this with my UG students. Thanks a million !!
@econhelp_official
Жыл бұрын
Thank you fellow teacher! Sometimes the videos come out on-point (not always but I try 😅) and I was happy with this one. Good luck to your class, the students sound like they’re in good hands 😎🙏👍
It was hard finding a good source for this to understand. This is probably the best video that explains this so simply and yet so thoroughly. It looked scary at first but you made it easy. THANK YOU. You're a great teacher. I'm sure you bring nothing but positive externalities to this world.
@econhelp_official
Жыл бұрын
Glad it was helpful! Thanks so much for your comment, you are too kind 🙏😊 indeed economics can look scary, but mostly it’s all bark no bite if you get my drift…
You are by far the best economics teacher. I never thought I would have the opportunity to say this to someone but your explanations are even clearer than khan academy's. Thank you very much!
@econhelp_official
Жыл бұрын
Wow that's so cool! You're so lovely, thanks so much xxxoooo
You are an angle! The best video for LRAC & SRAC!
@econhelp_official
Жыл бұрын
That's so nice thanks! Good luck with your study!
Was very helpful at the 11th hour of my assignment. ❤
@econhelp_official
7 ай бұрын
Aw nice! Hope your assignment went well!
You nailed it. Very useful and understandable 👍
@econhelp_official
Жыл бұрын
It's so special to hear a compliment from professional teachers, thanks so much!
I loved that your words about transformation of short run to long run average total cost curves
@econhelp_official
Жыл бұрын
Thank-you! That's really nice, hope you have a great day! :)
@hasancandogan986
Жыл бұрын
@@econhelp_official thanks for your kindness I Hope you have awesome day
Thank you for the clear explanation. I'm always wondering the mathematical basis for my A-level economics and your video just answers my doubts.
@econhelp_official
Жыл бұрын
You're welcome! Good to know my video is relevant for the A-levels! Thanks for the comment :)
Many thanks!!!!
@econhelp_official
10 ай бұрын
You're welcome! Thanks for the comment :)
Your videos are really well done and you're great at explaining this stuff. Thanks!
@econhelp_official
Жыл бұрын
Thanks! I really like doing the videos and the comments help me, thanks so much!
Thank you! This video helped me very much
@econhelp_official
6 ай бұрын
I'm so glad to hear that! Thanks so much for the comment! ❤️
Commenting for the algorithm ❤️
@econhelp_official
2 жыл бұрын
😊 This made me feel so appreciated! You're the best, thanks for the support!! xx
This is great thank you
Best explanation
@econhelp_official
7 ай бұрын
Glad you think so! Thanks so much for the comment!
@user-ht8pm8fp3j
7 ай бұрын
@econhelp44 Does every SRAC touch LRAC at its minimum point?
@econhelp_official
7 ай бұрын
@@user-ht8pm8fp3j good question and nope, absolutely not. Min sr atc does not need to be on lrac and lrac does not consist of only min srac. Actually it’s only at the minimum of lrac that they will definitely be tangent. I should make a video on this point. I will put this on my list of videos to do, but feel free to email me on econmathhelp@gmail.com if you want more discussion/help or you can answer here too 😀
@user-ht8pm8fp3j
7 ай бұрын
@econhelp44 I am eager for the video on this topic! I'll try to sort it out myself and then might write to you to verify guesses. Thanks!
@econhelp_official
7 ай бұрын
@@user-ht8pm8fp3j So one interesting story about this topic is here conversableeconomist.blogspot.com/2019/12/the-story-of-viners-draftsman.html#:~:text=Viner's%20draftsman%20was%20a%20mathematician,in%20the%20figure%2C%20AC). There are really two points, the first is why SRAC is (typically) not at a minimum when it hits LRAC, and an easy response is because there is no conceptual requirement for that to be the case (there is a more thorough response which involves a discussion about minimisation and tangency, that's a longer topic, but just noting that there is no conceptual requirement for that to be the case might help). Except at the minimum of the LRAC, and to say this another way, where the LRAC is perfectly horizontal. At this point it is conceptually impossible for the SRAC curve to be at any other point other than its minimum. This is a conceptual necessity; since the minimum of the LRAC is the lowest possible ATC when all factors are variable. If SRAC was anywhere else than it's minimum at this point that would be a direct contradiction. Does that help at all?
great thanks for your detail explanation
@econhelp_official
Жыл бұрын
Glad it was helpful!
Madam please don't stop such lovely video ❤❤😊
@econhelp_official
Жыл бұрын
Awwwww you’re so sweet! Thanks for the comment!
Great video, well done and thanks!
@econhelp_official
Жыл бұрын
You’re welcome! I’m so glad that you liked it!! 😀
very helpful Thank you very much!!
@econhelp_official
Жыл бұрын
You're welcome! Thanks for the comment and good luck with your study!
The video is on point.
@econhelp_official
Жыл бұрын
Thank you 🙏!
Great video but is there a difference between productive efficiency in the long run vs productive efficiency in the short run? Is a firm that produces at the min of srac productively efficient in short run while a firm that produces on any point on lrac is productively efficient in the long run?
@econhelp_official
2 ай бұрын
Really good question, I find this stuff really difficult. Some texts identify productive efficiency with technical efficiency, some use a broader definition (I think… it’s so confusing), so even on definitions alone I find this area problematic. Best to ask your teacher/ check textbook. In my experience more advanced texts take LR equilibrium to be at min LRAC, and this is what it is to be productively efficient. More beginner texts don’t seem to differentiate between LRAC and SRAC, they just say P= min AC in the LR, and they sometimes say this is productive efficiency… hope this helps, sorry I don’t know the proper answer!
I think you meant for Q** the best is SRAC 6 (not 7)
@econhelp_official
6 ай бұрын
It’s 7, the labelling is just poor, I did the best I could sorry. To see it clearer count from the right hand side back. The furthest is 8, second furthest is 7, that’s the lowest srac associated with q**.
Nice video ma'am. I have a question though....why are the subsequent SRACs after the first positioned the way they are? For example, why is SRAC2 below SRAC1. Please respond soon
@econhelp_official
Жыл бұрын
Really good question. The short answer is that it doesn't have to, but we usually show it this way because it gives the LRAC curve a 'u' shape that has some properties that some economists find attractive. The downward sloping section (economies of scale) is often explained as follows: as firm output increases inputs to production are able to specialise (become more efficient). Alternatively, at larger scales the firm can often get discounts on our inputs to production (bulk discounts). Both effects will reduce average total costs. In some texts the downward sloping section is linked to the firm exhibiting increasing returns to scale. This would be true if the technology used to make the good was such that for any proportionate increase in the inputs, output increases more than that proportion. For instance if we double all of the inputs then we would get than double the output back. The upward sloping part (diseconomies of scale) is harder to rationalise and in different text books you see different sorts of explanations. Some texts relate the upward sloping portion of the LRAC (diseconomies of scale) to decreasing returns to scale (RTS). I find this less convincing since it would mean that the firm’s technology has changed in such a way that the production function now exhibits decreasing returns to scale (imho... why would the technology change to make things more expensive on average if we increase all inputs by some proportion??). The only thing I can think of is that perhaps it is hard to organise large scale firms, which means that the firm becomes inefficient and each marginal unit becomes more expensive. Other authors give different accounts. Varian - probably one of the more common intermediate text books attributes the u shape of LRAC to the presence of 'quasi-fixed' factors. From what I can tell, what Varian means here is that these inputs to production are 'fixed' in the sense that the firm only has a fixed amount of them (they don't vary with Q). In this sense, eventually these quasi fixed factors will lead to rising average costs as they are constrained in the same way fixed factors of production in the short run leads to rising (SR)MC and rising (SR)ATC -I'm guessing from what I gauge the text, Varian is not super clear here (I have a video on firm SR costs that explains this if you are confused). But, these quasi fixed factors are not sunk - so the firm only has to pay them if they produce some positive amount so it's not like a constraint in the short run where the firm has no choice but to have them in the particular level that has already been paid for. It's just that we need (have) them in a fixed amount. It's worth noting that the cost associated with them will be a fixed amount, and this will give us the downward sloping section as well of LRAC as well. I find Varian a bit hard to interpret here, but reading between the lines maybe this is what he might mean - as the firm expands they are going to hit some sort of constraint on their expansion (eventually). There is only so much land available, or water, or labour: nothing is infinite, and so once one of these is exhausted, it becomes 'fixed' in a sense (we call this 'quasi-fixed'). Our other factors of production then have to work around this constraint and LRMC and therefore LRAC increases. This interpretation is intuitive to me, but I think i've probably even read too much into Varian here. This argument is under section 22.5 Long-Run Costs 9th edition of Varian if you want to ever have a look. I think most texts don't offer this kind of explanation because we're in the long run and any sort of mention of constraint will just confuse students (since the defining difference between SR and LR is that all inputs are variable so there are no constraints... ). So that's a lot, but those are my thoughts, explanations do differ across different texts... Very sorry I can't offer a more simple response, hope it helped. Edit: Sorry about the edit, it’s a topic I’ve thought about before so I have lots of thoughts, my first version was jumbled.
@sannti741
Жыл бұрын
Related to your first argument with the upward sloping part, Becker says in his book that there is one factor that is finite, the owner of the firm. Contracted managers are involved in principal agent issues, so the productivity of the owner it's not replicable. You can sell part of your company but small shareholders have less incentives than one single owner to control and work in the company. PD: you are the best explaining microeconomics and your videos are so useful and clears.
@econhelp_official
10 ай бұрын
@@sannti741 I didn't know that! If you have time, which book was it? Creating the videos on this stuff is actually really interesting, because if you look at different texts often they differ (ever so slightly sometimes!) in their treatments and explanations. Sometimes we treat our models in economics as if there is only one true correct account, but actually you can get (slightly) different variations and different authors stress different things. I don't take this as problematic, just as interesting, but I do feel like if we don't acknowledge it, we miss out on acknowledging that working with models can be hard, it can be interpretative, and should be done with care. It's not just maths. Thanks for the nice comment by the way! Made my day :)
@sannti741
10 ай бұрын
@@econhelp_official it is "Economic Theory" by Gary Becker. This book has a lot of useful interpretations slightly differents. He start the book showing that is possible to get the same conclusion of the traditional consumtion problem but just with the budget constraint, the preferences are not necessary (adding some additional assumptions). Continue making videos, you are the best :)