Long Run Marginal Cost
Change in the total cost in the long run due to production of one more or one less unit of commodity is called long run marginal cost.
Definition: in the words of Ferguson, "long run marginal cost is the additional to total cost attributable to an additional unit of output when all inputs are optionally adjusted.
Long run marginal cost (LMC) = change in long run marginal cost (ΔLTC)/ Change in output (ΔQ)
Relation in LMC and SMC
SMC offers to the effect on total cost due to the production of one more unit of output on account of change in variable factors. LMC refers to change in all factors due to production of one more or less output due to change in all factors are variable. The long run marginal cost is derived from short run marginal costs, but does not envelope them. The long run marginal cost must be equal to SMC for the output at which the corresponding SAC is tangent to the LAC.
The behavior of the LMC curve is shown in fig. the LAC and LMC curve will behave in the same way as the SAC and SMC curves, i.e.
(i) So long as the LAC is falling the LMC curve will lie below the LAC curve.
(ii) So long as the LAC curve is rising the LMC curve will be rising and will lie above it.
(iii) The LMC curve will intersect the LAC from below and at its minimum point. This property follows (i) and (ii) above.
Usefulness of LAC curves: the usefulness of LAC curve lie in its ability to assist firm in the determination of the best size of the plant to be adopted for producing the given output. For outputs less than the low cost combinations at the optimum scale that is when the firm is operating subject to increasing returns to scale minimum cost output than to overuse of a smaller plant. Conversely at outputs beyond the optimum level that is when the firm experiences decreasing returns to scale it is more economical to overuse a slightly smaller plant than to under use a slightly larger one.
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