Economics

Study Notes

Long Run Average Cost (LRAC)

Level:
A Level
Board:
AQA, Edexcel, OCR, IB

What is long run average cost?

Long run average cost is the cost per unit of output feasible when all factors of production are variable

Internal economies of scale - revision video
  • In the long run, all costs are assumed to be variable.
  • Economies of scale are the unit cost advantages from expanding the scale of production in the long run. The effect is to reduce average costs over a range of output.
  • These lower costs represent an improvement in productive efficiency and can give a business a competitive advantage in a market.
  • They can lead to lower prices for consumers and higher profits / dividends for shareholders.
  • As long as the long run average total cost curve (LRAC) is falling, then internal economies of scale are being exploited by a business

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