Long Run Average Costs

Short-run cost curves relate costs and output for a specific scale of plant. Long-run cost curves identify the optimal scale of plant for each production level. Long-run average cost (LRAC) curves can be thought of as an envelope of short-run average cost (SRAC) curves.

This concept is illustrated in Figure 8.3, which shows four short-run average cost curves representing four different scales of plant. Each of the four plants has a range of output over which it is most efficient. Plant A, for example, provides the least-cost production system for output in the range 0 to Qj units; plant B provides the least-cost system for output in the range

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