Long-Run Costs: There a many important concepts in this section, but the two that require the most attention are the discussion of cost minimization in the isoquant/isocost diagram and the description of long-run average cost as the lower envelope of a series of short-run average cost functions.

 

First, the cost minimization discussion culminates in a diagram that students will find very similar to the diagram used to describe consumer choice earlier.  It is useful to play up the similarities, but important to discuss the differences as well.  In particular, the underlying story involves attempting to reach the lowest isocost line given a production target illustrated by a given isoquant.  This is the opposite story from consumer choice in which consumers attempted to get to the highest possible indifference curve while facing a budget constraint.  It is still a constrained optimization problem, but one that involves minimization rather than maximization.  Of course, the fact that the optimal solution still exists at a tangency point will likely be noted by students and is worth emphasizing as well.

 

In the discussion of long-run average cost and its relation to short-run average cost, it is helpful to draw a diagram like Figure 6.7 with 3 possible scales (as shown in the figure) along with the same diagram with 5 possible options, 10 possible options, etc.  This helps students see very clearly that with many possible options the LRAC will take on a smooth shape instead of the scalloped pattern shown initially.