Long-Run Cost

Long run costs are accumulated when firms change production levels over time in response to expected economic profits or losses. In the long run, there are no fixed factors of production. The land, labour, capital goods, and entrepreneurship all vary to reach the long run cost of producing a good or service. The long run is a planning and implementation stage for producers. They analyse the current and projected state of the market in order to make production decisions. Efficient long run costs are sustained when the combination of outputs that a firm produces results in the desired quantity of the goods at the lowest possible cost. Examples of long run decisions that impact a firm’s costs include changing the quantity of production, decreasing or expanding a company, and entering or leaving a market.