Long run average cost
Definition. Long run average cost is the lowest cost per unit of output achievable when a firm can vary all of its factors of production, including its scale of plant. The long run average cost curve is typically U shaped, envelloping the short run average cost curves.
The downward sloping part reflects economies of scale and the upward sloping part diseconomies of scale. The lowest point identifies the minimum efficient scale, the smallest output at which costs per unit are minimised.
This term belongs to Costs and Economies of Scale in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
Want to use long run average cost for marks in the exam? Learn it in class or message the team.