Long Run Average Cost (LRAC)
- AQA, Edexcel, OCR, IB
Last updated 12 Apr 2021
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
- 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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