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Explain LAC (Long run average cost curve). |
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Answer» Long-run average cost is the long-run total cost divided by the level of output. Long- run average cost curve depicts the least possible average cost for producing all possible levels of output. The short-run average cost curves are also called plant curves. In the long run, the firm has a choice in the employment of a plant, and it will employ that plant which yields minimum possible unit cost for producing a given output. Long-term average cost curve is in the shape of English letter ‘U’, because it is determined by return to scale. It is also called the-envelope curve since it surrounds many short-term average cost curves LAC = \(\frac{TC}{Q}.\) |
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