Short-run and Long-run Average Costs Curves
- Day to day operations of a firm occur in the short-run
- In the long-run, they are able to plan to increase the scale of production
- E.g by increasing the size of the factory
- Larger scale = more output & the firm moves onto a new SRAC curve in which the average unit costs are lower
- In the long-run, a growing firm is likely to keep repeating this process,
- Each time a more efficient SRAC is generated
- Each time a more efficient SRAC is generated
- The long-run average cost curve (LRAC) is the line of best fit between the lowest points of the short-run ATC curves
The LRAC curve is generated by the addition of successive SRAC as the firm expands its scale of production