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)

Techniques of manpower forecasting, Normal 0 false false fa...

Normal 0 false false false EN-IN X-NONE X-NONE MicrosoftInternetExplorer4

State about the prices - price level, State about the prices - Price level ...

State about the prices - Price level Prices are of great significance in macroeconomics as indeed they are in microeconomics. Though, in microeconomics we are more interested i

Real business cycles, REAL BUSINESS CYCLES: The extent of this module ...

REAL BUSINESS CYCLES: The extent of this module is partly indicated in the title. It is about real business cycle (RBC) theory. In addition, it exposes you to New Classical Bu

Find steady state level - production function, 1. Consider a model economy ...

1. Consider a model economy with a production function Y = K 0.2 (EL) 0.8 , where K is capital stock, L is labor input, and Y is output. The savings rate (s), which is define

Price crimination, (i) Define the three types of price discrimination, clea...

(i) Define the three types of price discrimination, clearly stating the different information requires of each type of discrimination. (ii) Find a real-world example of second-degr

Aspects to promote administrative reforms, Aspects to promote administrativ...

Aspects to promote administrative reforms: Following aspects to promote administrative reforms: 1) A closer focus on results in terms of efficiency and effectiveness, and

Production possibility curve, construct your own version of a production po...

construct your own version of a production possibility curve and use it to explain scarcity, opportunity cost and choice

Detergent Cartel problem, 2) Proctor & Gamble (P&G) and the Lever Co. decid...

2) Proctor & Gamble (P&G) and the Lever Co. decide to form a laundry detergent cartel for future sales in Europe. Lever is more efficient than P&G. a)illustrate graphically how the

How is the wrong conclusion result in necessary condition, How is the wrong...

How is the wrong conclusion result in necessary condition not in the sufficient condition? This is often heard that the market institution must not be used based onto the fact

Inflation-unemployment trade-off under adaptive expectations, Inflation-Une...

Inflation-Unemployment Trade-off under Adaptive Expectations : By the late 1960s, the inverse relation between inflation and unemployment as suggested by the Phillips curve was

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages