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LAC - person Such changes make productive activities more...

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LAC, LMC and scale of production: Besides internal economies that a firm enjoys in the short run, it has the advantage of the scale economies in the long run. Each fixed factor with its given life span constitutes a scale of production which in the short run cannot be altered. With the passage of time each of these factors can be altered and replaced. This permits change in the scale of production. An old machine can be replaced by a new one which has better capacity, a manager can be replaced at the end of the contract period with another more qualified and experienced
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Unformatted text preview: person. Such changes make productive activities more efficient and hence are called economies (advantages) of the scale . Since the long run goes on combining such individual advantages it is also called a chain of the short runs . In Figure 30 we find Long run Average cost Curve (LAC) represented by a chain of three short run cost curves SAC1, SAC2 and SAC3. In between them there may be many more SACs. We have also drawn LMC which is the Long run Marginal cost Curve. It intersects LAC at the minimum point of LAC which is N2 at output level Q2....
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