Economics Short Run Vs Long Run Costs Questions
Average fixed costs in the long run refer to the fixed costs per unit of output when all inputs can be adjusted. In the long run, a firm has the flexibility to change its level of production by adjusting its plant size, equipment, and other fixed inputs. As a result, average fixed costs in the long run decrease as the firm increases its production. This is because the fixed costs are spread over a larger number of units, leading to a lower average fixed cost per unit. In other words, as the firm expands its scale of operations, the fixed costs are distributed over a larger output, reducing the burden of fixed costs on each unit produced.