Long Run Average Cost

Long Run Average Cost (LRAC) refers to the lowest average cost of production a company can achieve when all inputs can be adjusted over time, such as labor and capital. It considers the efficiency that a firm can achieve when producing at various scales. In the long run, businesses can change their resources and production methods to meet demand. This concept helps firms understand how costs might change with production levels, guiding them in deciding the optimal size of their operations to maximize efficiency and minimize costs.