Long run average cost (lac), Microeconomics

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? 

Posted Date: 10/12/2012 3:25:39 AM | Location : United States







Related Discussions:- Long run average cost (lac), Assignment Help, Ask Question on Long run average cost (lac), Get Answer, Expert's Help, Long run average cost (lac) Discussions

Write discussion on Long run average cost (lac)
Your posts are moderated
Related Questions


income generation in a static and dynamic setting

A monopolist''s demand curve is P=100-2q. find his MR function. at what price is MR zero

KEYNES' THEORY AND EXPECTATIONS : Expectations played a major role in Keynes' theory of the determination of aggregate output and employment in market economies in the short run

once vaccinated,a person cannot catch a cold or give a cold to someone else. As a result,the marginal social benefit resulting from consumption of the vaccine.

Q. Role of Monetary Policy? Monetary Policy: Monetary policy reflects the use by government and government agencies (mainly the central bank) of interest rate adjustments and o

given that a=(4;2) and b=(5;11)determine the value of x in the following equation b=3x-1/2a

Consider the following insurance market. There are two states of the world, B and G, and two types of consumers, H and L, who have probabilities pH =0.5 and pL =0.25 (high and low

M.Phil. Admission Test, 2017 Economics Model Question Group A Domain Knowledge in Economics Correct answer is as marked in black. Micro Economics 1. Consider a utility function U =