Question

What is a long-run average cost curve?

   What is a long-run average cost curve?

Principles of Microeconomics for AP® Courses

Principles of Microeconomics for AP® Courses

Steven A. Greenlaw,… 2nd Edition

Chapter 7, Problem 26

Instant Answer

Solved by Expert Srikar Katta

08/04/2019

Step 1

This means that a firm can adjust all its inputs in response to changes in market conditions. Show more…

Show all steps

lock

Thanks for your feedback!

What is a long-run average cost curve?

Play audio

Feedback

Powered by NumerAI

Srikar Katta and 101 other educators are ready to help you.

Ask a new question

Labs

Want to see this concept in action?

NEW

Explore this concept interactively to see how it behaves as you change inputs.

View Labs

Key Concepts

Envelope curve

The long-run average cost curve can be seen as an envelope of all possible short-run average cost curves corresponding to different fixed production capacities. Each short-run cost curve reflects cost minimization when some factors are fixed, while the long-run curve shows the best possible cost outcomes when all inputs are flexible and optimally chosen.

Diseconomies of scale

Diseconomies of scale arise when further increases in production result in higher average costs per unit, often due to factors like increased complexity, inefficiencies in management, or over-utilization of resources. This concept explains why the long-run average cost curve may eventually slope upward at very high levels of output.

Long-run average cost curve

The long-run average cost curve represents the lowest possible cost at which a firm can produce any level of output when all inputs are variable. It reflects the optimal production process or plant size for each level of output over a period in which no factor is fixed, allowing firms to adjust all aspects of production to minimize costs.

Economies of scale

Economies of scale occur when increasing production leads to lower average costs per unit, as fixed costs are spread over a larger quantity of output and operational efficiencies improve. This phenomenon is an important reason why the long-run average cost curve initially slopes downward with increased output.

Recommended Videos

Transcript

Ace is your personal tutor. It breaks down any question with clear steps so you can learn.

Start Using Ace

Continue solving this problem

Create a free account to:

View full step-by-step solution
Ask follow-up questions with Ace AI
Save progress and study later