long run average cost curve and short run average cost curve
relationship between long run average cost curve and short run average cost curve
The relationship between these two curves is that a long run average cost curve consists of several short run average cost curves, each of which refers to a particular scale of operation. both curves are u shaped the short run avg cost curve rising because of labour specialisation and better spreading of fixed costs and it rises due to the law of diniminshing returns. the long run avg cost curve falls because of economies of scale and rises because of dis-economies. the long run avg cost curve must comprise of all the lowest points of each of the short run avg cost curve because no firm will operate at a level of higher costs in the long run than in the short run. the long run avg cost curve must always be equal to or lie below any short run avg cost curve because in the long run all factors of production can be variable