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
Situation is where a luxury is there. There is the snob appeal possibility where the higher the price, the more desired the commodity it.  Often people will drive expensive cars, e


#question.what is elasticity of demand? .


Suppose the demand curve for a consumer for coffee is: Q = 6 - 2P, where Q represents the number of cups per day and P is the price of coffee per cup.  1.  Suppose the con

What is Demand Forecasting? Explain in brief various methods of forecasting Demand.

Problem: (a) Define money and briefly explain its core functions. (b) Explain the relationship between interest rate and price of bonds, illustrate using example. (c)

Q. What is Heterodox Economics? Heterodox Economics:Different schools of thought (including post-Keynesian, Marxian, structuralist and institutionalist economics) which reject

The accompanying table represents the price and yearly quantity sold of ice cream cones on Sidfield Island.   Price of Ice Cream Cones Quantity of Ice Cr

Shifting the PPF Curve To raise the manufacturing of one good without reducing the production of the other, the PPF curve should shift outward. The PPF curve shifts outward as