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27 de may. de 2021 · What Is Long-Run Average Total Cost (LRATC)? Long-run average total cost (LRATC) is a business metric that represents the average cost per unit of output over the long run, where all inputs are...
Calculate long run total cost. Identify economies of scale, diseconomies of scale, and constant returns to scale. Interpret graphs of long-run average cost curves and short-run average cost curves. Analyze cost and production in the long run and short run. The long run is the period of time when all costs are variable.
The long-run average cost (LRAC) curve shows the firm’s lowest cost per unit at each level of output, assuming that all factors of production are variable. The LRAC curve assumes that the firm has chosen the optimal factor mix, as described in the previous section, for producing any level of output.
If the cost of labor remains at $40, but the cost of a machine decreases to $50, what would be the total cost of each method of production? Which method should the firm use, and why? Show solution.
The chief difference between long- and short-run costs is there are no fixed factors in the long run. There are thus no fixed costs. All costs are variable, so we do not distinguish between total variable cost and total cost in the long run: total cost is total variable cost.
In this video we explore the long run average total cost curve and how average costs vary when all inputs can be adjusted.
