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“The Long- run Average Cost is a guide to entrepreneurs in any decision to plan the future expansion
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"The Long- run Average Cost is a guide to entrepreneurs in any decision to plan the future expansion of a company". Discuss The long- run is defined as the time period in which any production factor may be changed. Hence, in the long- run, there is no fixed cost. The Long- run Average Cost (LAC) is the total cost divided by the quantity produced LAC = TC/ Q Definitions (Positive) economies of scale occur when the LAC is declining over an output range (up to point A in the diagram). If the LAC is increasing, then diseconomies of scale (or negative economies of scale) are present (after point B in the diagram). A stable LAC necessitates constant economies of scale (output range QAQB in the diagram). DIAGRAM: Draw a usual LAC diagram, with one exception. The LAC is usually U- shaped curve, i.e. there is a minimum point. However, draw at the...
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