¶ … run average cost curves steeper downward side. Discuss fully.
Discuss why some long-run average cost curves are steeper on the downward side than others. Discuss fully.
The Long Run Average Cost (LRAC) curve of a firm "shows the minimum or lowest average total cost at which a firm can produce any given level of output in the long run (when all inputs are variable)" (A firm's long run average cost curve, 2001, Think Economics). A firm desires to maximize its profits and minimize its input costs, and thus strives to find the most profitable point of equilibrium on the curve. Unlike in a short-run cost curve, in which a firm is assumed to be constrained in its choices to minimize the costs of production, over the long-term a firm has more discretion to make better choices regarding its input costs. Costs such as labor can also vary over time, so the LRAC gives a more complete picture of the firm's ability to be profitable.
In the short run, because of the firm's limited ability to alter the...
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