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)

Marginal physical product of labor, #q7. Problem-solving question: Use the...

#q7. Problem-solving question: Use the following data for a firm’s output at various levels of employment (L) to calculate: a) its marginal physical product of labor (MPPL) sched

Oligopoly, reason for kinked demand curve

reason for kinked demand curve

Microeconomics in study of managerial economics, What is the importance of ...

What is the importance of microeconomics in study of managerial economics? Normal 0 false false false EN-IN X-NONE X-NONE

Price responsiveness of supply, On Valentine's Day, the price of roses incr...

On Valentine's Day, the price of roses increases by more than the price of greeting cards. Why? (Hint: Consider what makes roses and cards different and how that difference might

Satisfy the linear relationship, Let {(y i * ; x i ); 1 ≤ i ≤ n} be an i.i....

Let {(y i * ; x i ); 1 ≤ i ≤ n} be an i.i.d sequence of random variables where y i * and x i satisfy the linear relationship y i * = β 0 + β 1 x i + ∈ i with Cov(x i ; ∈

Monopolistic competition and oligopoly, Monopolistic Competition and Oligop...

Monopolistic Competition and Oligopoly: It was recognized that most industries exhibit the features of monopolistic competition in real-life. However, it must be pointed out t

Short period analysis - theory of production, SHORT PERIOD ANALYSIS: S...

SHORT PERIOD ANALYSIS: Short period in production refers to a time when some inputs remain fixed. A fixed input is one, whose quantity cannot be changed readily, whereas, a va

Determine the action keep the price above market equilibrium, What actions ...

What actions could a government take in order to keep the price above market equilibrium? There are four basic possibilities here; 1) Minimum price; 2) A tax on the good

Explain supply and demand diagrams, During the 1990s, technological advance...

During the 1990s, technological advance reduced the cost of computer chips. Explain, with the use of supply and demand diagrams, how the following markets are affected in terms of

Short notes, Amartya Sen''s concept of poverty and welfare.

Amartya Sen''s concept of poverty and welfare.

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages