Long-Run versus Short-Run Cost Curves

1 year ago
Microeconomics

Long-run average cost curve (LAC) – Curve relating average cost of production to output when all inputs, including capital, are variable.

Short-run average cost curve (SAC) – Curve relating average cost of production to output when level of capital is fixed.

Long-run marginal cost curve (LMC) – Curve showing the change in long-run total cost as output is increased incrementally by 1 unit.

LMC<LAC then LAC will fall

LMC>LAC then LAC will rise

LMC=LAC then min. of LAC

Economies of scale – Situation in which output can be doubled for less than a doubling cost.

Diseconomies of scale – Situation in which a doubling of output requires more than a doubling cost.

Bijay Satyal
Dec 1, 2021
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