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DISECONOMOES OF SCALE)
The long run average cost (LRAC) curve is a graphical representation
of the relationship between the average cost of production and the
level of output when all inputs are variable. It shows the lowest
average cost at which a Firm is able to produce a given quantity of
output in the long run, allowing for adjustments in all factors of
production.
In the short run, at least one input is fixed, leading to a different cost
structure. However, in the long run, all inputs can be adjusted,
enabling the firm to optimize its production process and achieve
economies of scale, which are reflected in the LRAC curve. The
LRAC curve typically exhibits three stages: economies of scale,
constant returns to scale, and diseconomies of scale. These stages
illustrate how the average cost changes as output increases, providing
insights into the firm's production efficiency over the long term.
These three stages illustrate how the average cast changes as output
increases, providing insights into the firm’s production efficiency
over the long run.
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COST PER UNIT
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SRMC
SRAC
CRAC
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Qo OUTPUT