Long Run Costs | Production and Costs | Notes | Summary - Zigya

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Production And Costs

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Long Run Costs

Shapes of the Long Run Cost Curves: As, there is no distinction between fixed cost and variable cost. Therefore only long run average costs (LAC) and long run marginal cost (LMC) curve are mostly discussed.


U-Shape of LAC curve, is the result of operation of returns to scale which in turn, implies U-shape of LMC Curve.
From the figure, it is clear that LAC and LMC curve are U-shaped. LAC curve is declining up to OQ output. LMC curve cuts the LAC curve at the latter's minimum point. At the output OQ, the average cost is lowest which indicates that OQ output is the optimum output which is being produced at the lowest average cost. 

Shapes of the Long Run Cost Curves

Shapes of the Long Run Cost Curves: As, there is no distinction between fixed cost and variable cost. Therefore only long run average costs (LAC) and long run marginal cost (LMC) curve are mostly discussed.


U-Shape of LAC curve, is the result of operation of returns to scale which in turn, implies U-shape of LMC Curve.
From the figure, it is clear that LAC and LMC curve are U-shaped. LAC curve is declining up to OQ output. LMC curve cuts the LAC curve at the latter's minimum point. At the output OQ, the average cost is lowest which indicates that OQ output is the optimum output which is being produced at the lowest average cost. 

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