Meaning of Long run and short run average cost, Implication of average cost, Economies of scale, Diseconomies of scale

1. Long run average cost
&
Short run average cost
Presented By:
Rinshi Singh
PGDM 4

2. LRAC
 The abbreviation for long-run average cost, which is the per unit cost of producing a good or service in the
long run with all inputs are variable.
 As the firm goes on adding capital & labor and thus increase its scale of operation its begins receiving
unique advantage in terms of decrease in the average cost and increase in production.
Economics Average cost
Diseconomies Average cost

3. Economics of scale
Internal
Economics
of scale
Financial
Technical
Commercial
Managerial
Marketing
Labor
In the long run when the firm
increases its scale of operations,
it start receiving the positive
effect called “Economics of
scale” which are of two types:
External
economics of scale
Economies of
localization
Economies of
domestication

4. Diseconomies & Economies of Scale
Cost &
Revenue
Outputs
Economies
of scale
Diseconom
ies of scale
A
LRAC
Q
C

5. Deriving LRAC from SRAC curve