Economics Short Run Vs Long Run Costs Questions Medium
Average revenue of technology refers to the total revenue generated by a firm per unit of technology used. It is calculated by dividing the total revenue by the quantity of technology employed.
In the short-run, the relationship between average revenue of technology and costs is influenced by the fixed costs incurred by the firm. Fixed costs are expenses that do not change with the level of technology used, such as rent or loan payments. In the short-run, a firm may experience economies of scale, where the average revenue of technology increases as the firm increases its technology usage. This is because fixed costs are spread over a larger quantity of technology, resulting in lower average costs and higher average revenue of technology.
However, in the long-run, all costs become variable, including fixed costs. As a result, the relationship between average revenue of technology and costs may change. In the long-run, a firm may experience diseconomies of scale, where the average revenue of technology decreases as the firm increases its technology usage. This is because as the firm expands its technology usage, it may face diminishing returns to scale, where the additional units of technology result in smaller increases in output. This leads to higher average costs and lower average revenue of technology.
Overall, the relationship between average revenue of technology and costs is influenced by the presence of fixed costs in the short-run and the ability of the firm to achieve economies or diseconomies of scale in the long-run.