Figure 8-1 A “Saucer-Shaped” Long-Run Average Cost Curve
Long-Run Cost Curves
We have been discussing a firm’s cost-minimizing choices between
various factors of production. Remember that these are long-run decisions
because we are assuming that the firm is free to alter the amounts of all
factors of production. As we have seen, when all factors can be varied,
there exists a least-cost method of producing any given level of output.
Thus, with given factor prices, there is a minimum achievable cost for
each level of output; if this cost is expressed in terms of dollars per unit of
output, we obtain the long-run average cost of producing each level of
output. When this minimum cost of producing each level of output is
plotted on a graph, the result is called a long-run average cost (LRAC
curve. Figure 8-1 shows one such curve.