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)

Describe primary interests and theory of supply and demand, Part 1 - Sele...

Part 1 - Select a construction-based business of your choice and explain stakeholder theory to illustrate the primary interests of the stakeholder groups and identify any areas o

Sub-contracting and investing, The demand for one of Parsons products has i...

The demand for one of Parsons products has increased over the last few years and, despite the extensive use of overtime and weekend working, the company has been forced to sub-cont

Export entrepreneurship and use appropriate technology, Export Entrepreneur...

Export Entrepreneurship: This need be developed by providing necessary facilities and making export an attractive and profitable business proposition. In this connection, it

Micro economic theory., What is the problem of central economic

What is the problem of central economic

Create a multi-dimensional arrays, Create a Document that displays informat...

Create a Document that displays information about cars. First, create a select with an id="make". It will not have any makes in the options until the page finishing loading. When t

Law of variable proportion, research report of any firm

research report of any firm

Mba, Is Indian companies running a risk by not giving attention to cost cut...

Is Indian companies running a risk by not giving attention to cost cutting

How many strategy combinations, Janet decides to play a game with her child...

Janet decides to play a game with her children, Jay and Jill (who are fraternal twins) and Mo. Each child is in their own room and cannot communicate with each other. Suppose Jill

Why it is difficult to achieve macro objectives, Why is it so difficult for...

Why is it so difficult for government to achieve all macro objectives simultaneously? Specifically showing possible trade-offs i.e. a) Stimulatory policies which enhance AD

Marginal utility and indifference curve, Marginal Utility and Indifference ...

Marginal Utility and Indifference Curve - If the consumption of a product moves along an indifference curve, additional utility derived from the increase in consumption of sing

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages