Long run average cost (lac), Microeconomics

Assignment Help:

Long Run Average Cost (or LAC)

-Constant Returns to Scale

If the input is doubled, the output will double and average cost is constant at all the levels of output.

-Increasing Returns to Scale

If the input is doubled, outputs will double and average cost decreases at all the levels of output.

-Decreasing Returns to the Scale

If input is doubled, increase in output is less than twice and the average cost increases with the output.

-In the long run:

Firms experience increasing and decreasing returns to scale and therefore long run average cost is "U" shaped.

-Long run marginal cost(LMC) leads long run average cost(LAC):

If LMC < LAC, LAC will decrease
If LMC > LAC, LAC will increase
Thus, LMC = LAC at the minimum of LAC

347_long run average cost curve.png

Question

-What is relationship between long run average cost and long run marginal cost when long run average cost is constant?

Related Discussions:- Long run average cost (lac)

Rent control, Assume that the market equilibrium rent for two-bedroom apart...

Assume that the market equilibrium rent for two-bedroom apartments in Santa Monica, California is $1500 per month and the quantity is 40,000 units. The city council of Santa Monica

Consumer''s eqillibrium, a consumer consumes only two goods x and y is in e...

a consumer consumes only two goods x and y is in eqillibrium price of x falls explain the reaction of consumer through utility analysis

Partial input elasticity of output, Partial Input Elasticity of Output: ...

Partial Input Elasticity of Output: This is a short-run concept which deals with the variability of only one factor keeping the others constant. There are three kinds of retu

Institutional intervention on deightweight loss, so this question asks for ...

so this question asks for the deadweight loss if an institution decided to provide this service free of charge. I was wondering if this will achieve the socially efficent level or

Imposition of behavior assumptions in analytical framework, Illustrate abou...

Illustrate about the imposition of behavior assumptions in analytical frameworks of modern economics? Imposition of Behavior Assumptions: The second one step for studying

Potentials of productivity growth, Potentials of Productivity Growth: ...

Potentials of Productivity Growth: It needs to be noted that growth in productivity witnessed in the past are an average rate at the All-India level. There are considerable re

Global business etiquette, Your company has a product that it is interested...

Your company has a product that it is interested in marketing in a foreign country. Using one of the following Websites, click on a country of your choice to learn about Etiquette,

Production possibility frontier, Halala is a small country that uses most o...

Halala is a small country that uses most of Its resources to produce fruits and vegetables. If the country produces only fruits it is able to produce 8000kg of fruit per year. If i

Analysing the digital economy relative to e business, Problem: a) What ...

Problem: a) What factors would you consider when analysing the digital economy relative to e business? b) "The growing use of the internet by consumers and businesses has re

Risk and gambling, John has a utility function given by U(M) = M0.5, where ...

John has a utility function given by U(M) = M0.5, where M represents an amount of cash prize in a game. If John wins, with the probability of 0.2, he will get $900; otherwise, he g

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages