Economics Short Run Vs Long Run Costs Questions
In the short run, average costs refer to the total cost per unit of output produced by a firm. It is calculated by dividing the total cost by the quantity of output. Average costs include both fixed costs (costs that do not change with the level of output) and variable costs (costs that vary with the level of output). As output increases, average costs tend to decrease due to economies of scale. However, at a certain point, average costs may start to increase due to diminishing returns or diseconomies of scale.