Long Run
Candlefocus EditorThe long run is closely linked to the concept of the long-run average cost curve (LRAC), which shows the lowest cost per unit of output that can be achieved by the firm as it increases its output. On the LRAC, when costs of production are declining, it indicates that the firm is taking advantage of internal economies of scale, whereby the cost of producing an additional unit of output decreases as the overall output increases. On the other hand, when the cost of production rises on the LRAC as output increases, diseconomies of scale are present, where the cost of producing an additional unit of output rises with the increase in overall output.
The long run is an important concept for firms to consider when making long-term decisions. In the long run, businesses are able to make necessary capital investments to optimize resources and find the most efficient methods of producing the desired amount of output at the lowest cost. Additionally, the LRAC provides firms with a visual representation of the cost efficiency of their decision making, as well as the overall impact of the internal scale of production decisions. It is essential for firms to have a grasp of the long run in order to make decisions that will be cost effective over a longer period of time.