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what does the long-run average total cost curve show? the relationship between output and average total cost when fixed cost has been chosen to minimize average total cost for each level of output 1 / 83
The Long run average cost curve. Why can a firm not reach the lowest minimum cost in the short run ? In the short run at least one factor is fixed making it impossible for a firm to produce at the lowest minimum cost as that requires an appropriate mixture of the factors of production.
The long-run average cost curve shows the cost of producing each quantity in the long run, when the firm can choose its level of fixed costs and thus choose which short-run average costs it desires. If the firm plans to produce in the long run at an output of Q 3 , it should make the set of investments that will lead it to locate on SRAC 3 , which allows producing q 3 at the lowest cost.
- Deriving A Long Run Average Cost Curve
- Long Run Average Cost Curve
- Solved Question on Long Run Average Cost Curve
To understand the derivation of a long run average cost curve, let’s consider three short run averagecost curves (SACs) as shown in Fig. 1 below. These SACs are also called plant curves. In the short run, a firm can operate on any SAC, given the size of the plant. For the sake of our understanding, let’s assume that there are only three plants that...
Imagine if a firm has a choice of varying a plant by infinitely small gradations leading to infinite average cost curves. In such a case, the smooth curve enveloping all these short-runaverage cost curves is a long run average cost curve. As you can see in the figure above, the long run average cost curve is drawn tangential to all SACs. In other w...
Q1. The positively sloped (i.e. rising) part of the long run average total cost curve is due to which of the following? 1. Diseconomies of scale. 2. Increasing returns. 3. The firm being able to take advantage of large-scale production techniques as it expands its output. 4. The increase in productivity that results from specialization. Answer: Whi...
May 27, 2021 · The long-run average cost curve shows the lowest total cost to produce a given level of output in the long run. Long-term unit costs are almost always less than short-term unit costs because, in a ...
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However, if the long-run average cost curve has a wide flat bottom like Figure 3 (b), then firms of a variety of different sizes will be able to compete with each other. The flat section of the long-run average cost curve in Figure 3 (b) can be interpreted in two different ways. One interpretation is that a single manufacturing plant producing ...
