Costs in Long Run Period

• The long run is a period in which a firm can change all its inputs—including machines, buildings, and workers. No input is fixed; everything can be adjusted to change output.​
• Example: If a bakery wants to bake more bread in the long run, it can buy new ovens, hire more staff, or move to a bigger location.

• "In the long-run, all the factors of production are assumed to be variable." - Koutsoyiannis
• "It will be helpful to think of the long run situation into any one in which the firm can move." - Leftwich

"The long run total cost of production is the least possible cost of producing any given level of output when all inputs are variable." - Libhafasky

• LRTC: The lowest possible total cost for making any amount of goods when all inputs can vary.​
• In the long run, there are no fixed costs—if nothing is produced, total cost is zero.

"The long run average cost curve shows the lowest average cost of producing output when all inputs can be varied freely." - Robert Awh

• Formula:
  \[\overline{\mathrm{LAC}=}\frac{\mathrm{LRTC}}{\text{Quantity of Output}}\]
• LAC curve shows the lowest average cost per unit when all factors can be chosen.​
• Analogy: Think of LAC as the “cheapest possible menu” you could pick to feed your group, if you could freely select all ingredients and cooking tools.

• Envelope Curve: LAC surrounds all the short-run average cost (SAC) curves; it never rises above them, just touches them.
• Planning Curve: Helps firms decide which plant size is best for different output levels.

• SAC is for a single plant; LAC is for the best of all possible plant choices.
• Both are usually U-shaped, but LAC is flatter, showing costs change less sharply in the long run.
• LAC touches only one SAC at its lowest point; for others, tangency is not at their minimum.

"Long-run marginal cost curve is that which shows the extra cost incurred in producing one more unit of output when all inputs can be changed." - Robert Awh

• LMC: Extra cost for making one more unit when all inputs can be changed.
• Formula:
  \[\overline{\mathrm{LMC}=\frac{\Delta\mathrm{LTC}}{\Delta Q}}\]

The connection between long run marginal cost (LMC) and long run average cost (LAC) works just like the short-run case:

• When LAC is falling: LMC is below LAC, and it falls faster than LAC.​
• At the minimum point of LAC: LMC and LAC are equal. This is where both curves meet.​
• When LAC is rising: LMC is above LAC and increases faster than LAC.

• In the long run, firms can change all production factors for least cost.
• LAC curve helps in selecting the best way to produce for each output.
• LMC tells us how much extra cost is needed to raise output by one unit.
• Understanding cost curves helps firms plan profitably for both present and future production.​