Structure of Costs in the Long Run

Glossary

constant returns to scale

expanding all inputs proportionately does not change the average cost of production

diseconomies of scale

the long-run average cost of producing each individual unit increases as total output increases

long-run average cost (LRAC) curve

shows the lowest possible average cost of production, allowing all the inputs to production to vary so that the firm is choosing its production technology

production technologies

alternative methods of combining inputs to produce output

short-run average cost (SRAC) curve

the average total cost curve in the short term; shows the total of the average fixed costs and the average variable costs