Long Run Average Cost Curve (LRAC Curve)
Long Run Average Cost Curve Meaning
Long Run Average Cost Curve (LRAC) is one of the types of Cost Curves which depicts the cost per unit of output in the long run. The behavioral assumption underlying this curve is that the producer will select the combination of inputs that will produce a given output at the lowest possible cost. The shape of typical LRAC curve is U-shaped reflecting various aspects like:
- Negatively Sloped indicates = Increasing Returns of Scale
- Horizontally Sloped indicates = Constant Returns to Scale
- Positively Sloped indicates = Decreasing Returns due to increase in Factor Prices
