Explain how “learning by doing” and transportation costs each affect t

Explain how “learning by doing” and transportation costs each affect the long-run average cost curve.

What will be an ideal response?

ANSWER

Learning by doing results in increased productivity of an input. Thus, for each scale of operation, the cost of producing each unit of output decreases because the amount of inputs needed to produce a unit of output decreases. Thus, the short-run and, therefore, long-run average cost curves shift down. Including transportation costs in the long-run average cost function causes the LRAC curve to shift up, all else constant. In addition, if average transportation costs increase with the scale of production because goods have to be shipped over greater distances, this will cause the quantity at which long-run average costs are minimized to decrease as well.