Long Run Cost Curves

Long Run Cost Curves - run Average Cost Curve will be a...

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Long Run Cost Curves: Let us assume that a firm employs three factors of production with their life span given as Machine = 6 years, Manager = 10 years and Factory building = 15 years. Then for machine replacement 7 years is the long run, for replacement of manager 11 years is the long run and after 15 years all the three factors become perfectly variable or replaceable. Depending upon length of the long period, the long run cost curve will behave in one way or the other. If all the factors are perfectly variable and there are no fixed factors at all then the long
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Unformatted text preview: run Average Cost Curve will be a horizontal line parallel to OX axis. If some of the fixed factors have an unlimited capacity to produce then the long run Average Cost Curve will continuously fall downward. If some of the factors are variable while a few other factors continue to be fixed even in the long run then LAC will be ’U’ shaped but flatter than SAC. Let us present a graph of the LAC....
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