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Long Run Average Cost (LRAC)

The long-run average cost (LRAC) is a measure of the lowest cost at which a firm can produce a given level of output in the long run, when all inputs are variable. In the long run, a firm has the ability to vary all of its inputs, including the size of its plant and the amount of labor and capital it uses.

The long-run average cost curve shows the relationship between the minimum average cost of production and the level of output, for a range of possible plant sizes. The long-run average cost curve is typically downward-sloping, indicating that as the level of output increases, the minimum average cost of production decreases.

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