Nature of Long Run Marginal Cost Curve
Here, we understand the nature of long run marginal cost curve with figure in detail.
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Nature of Long Run Marginal Cost Curve
We know that the long run marginal cost curve that derived from the long run average cost curve as shown in below mentioned figure.
Figure:
As shown in figure, the long run marginal cost curve (LRMC) derived from a long run average cost curve (LRAC) consisting enveloping family of short run average and marginal cost curves. Suppose, if OA output is produced in the long run, then it must be produced on the LRAC curve at point H which is tangency point with the short run average cost curve that is SRAC1. Here, at point H the cost is minimum for output OA. Correspond to the tangency point H on SRAC1 and LRAC, there is a point N on the short run marginal cost curve SRMC1. It means that AN is the relevant short run marginal cost for output OA in the long run. Point N must lie on the long run marginal cost curve corresponding to output OA.
If suppose, OB output is also be produced in the long run, it will produced at point Q which is a tangency point between LRAC and SRAC2. Q is the point on short run marginal cost curve SRMC2 corresponding to output OB. Point Q also lies on LRMC curve corresponding to output OB.
Similarly, if OC output is produced in the long run, it will produced at point M which is the tangency point between LRAC and SRAC3. Correspond to point M the relevant point on short run marginal cost curve SRMC3 is K which indicates that the long run marginal cost of producing OC output is CK. Point K lies on the long run marginal cost curve corresponding to output OC. By joining the points N, Q and K, it clearly indicates the long run marginal cost curve that is LRMC.
As shown in above figure, the long run marginal cost curve like the long run average cost curve is U-shaped. The long run marginal cost curve is also flatter than the short run marginal cost curve. The relationship between the long run marginal cost curve and the long run average cost curve is the same as between short run marginal cost curve and short run average cost curve.
When the long run marginal cost curve lies below the long run average cost curve, the latter is falling and when LRMC curve lies above LRAC curve, the latter is rising. The LRMC curve cuts the LRAC curve at its lowest point, because the long run marginal cost is equal to the long run average cost means that the latter is neither rising nor falling.
Short form used:
LRMC = LONG RUN MARGINAL COST CURVE.
LRAC = LONG RUN AVERAGE COST CURVE.
SRAC = SHORT RUN AVERAGE COST.
LRAC = LONG RUN AVERAGE COST.
CONTINUE READING
Long Run Marginal Cost Curve
Long Run Average Cost Curve
U-shaped
Long Run Average Cost
Long Run Marginal Cost.
Theory of Costs - Nature of Long Run Marginal Cost Curve.
Kinnari
Tech writer at NewsandStory