Short-run vs Long-run: Marginal Costs

In the short run, firms operate with at least one fixed input. So, the short-run marginal cost or MC_SR reflects the additional cost incurred by producing one more output unit.

On the other hand, the long-run marginal cost, or MC_LR is the cost of producing one additional unit when all inputs are variable. This allows adjustments to achieve greater efficiency and lower costs per additional unit.

Each Short run marginal cost curve crosses its corresponding Short run average total cost curve at its minimum point.

To determine the Long run marginal cost curve or MC_LR, the points where the Short run average total cost curves intersect the Long run average total cost curve are identified at points A, Y, and B. Then, the corresponding quantity points on the respective Short run marginal cost curves are marked. Connecting these points for different output levels yields the Long run marginal cost curve.

When the Long run average total cost is falling, the Long run marginal cost curve is below it; and when the Long run average total cost is rising, the Long run marginal cost curve is above it.

Both curves intersect at the minimum point of the Long run average total cost.