The long run average cost curve is normally derived from a series of short run average cost curves.
Assume a firm initially produces 300 units of output. Its average costs would equal point A on SATC1. In the short run, at least one factor input is fixed, and therefore if the firm wishes to increase output to 600 units the firm must move along the short run average costs curve to point B.
However, in the long run the firm can increase all the factors and therefore instead of moving up an existing cost curve the firm will move to a larger scale production and therefore a new lower short run average cost curve SATC2 at point C. In reality there could be an infinite number of plant sizes and therefore an infinite number of SATC curves.
The long run average total cost curve (LAC) therefore consists of a series of points on all these different SATC curves.
lydiajane74 answered the question on July 5, 2018 at 07:44
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