Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 7] COSTS OF PRODUCTION 149
Fig. 7-3(b)
In panel C, the AC at 2 units of output is given by the slope of ON, which is $50. This gives point N 0 on the AC curve.
The AC at 6 units of output is given by the slope of OS, which is $30. This is plotted as point S 0 on the AC curve. Note that as
output expands, the slope of the line from the origin to the TC curve falls up to point R and rises thereafter. Thus, the AC
curve falls up to point R 0 and rises thereafter.
In panel D, the slope of the TVC curve and the slope of the TC curve are the same at any level of output. Thus, MC is
given either by the slope of the TVC curve or by the slope of the TC curve. As output expands, these slopes fall continuously
until points T and T 0 (the points of inflection), and rise thereafter. Thus, the MC curve falls up to 2.5 units of output (point
T 00 ) and then rises. At 4 units of output, MC is given by the slope of the TVC curve at point Z. This is $55/4 or $13.75 and
equals the lowest AVC. At 5 units of output, MC is given by the slope of the TC curve at point W. This is $135/5 or $27 and
equals the lowest AC.
7.4 THE LONG-RUN AVERAGE COST CURVE
In Chapter 6 we defined the long run as the time period long enough to enable the firm to vary the quantity
used of all inputs. Thus in the long run there are no fixed factors and no fixed costs, and the firm can build any
size or scale of plant.
The long-run average cost (LAC) curve shows the minimum per-unit cost of producing each level of
output when any desired scale of plant can be built. LAC is given by a curve tangent to all the short-run
average cost (SAC) curves representing all the alternative plant sizes that the firm could build in the long
run. Mathematically, the LAC curve is the envelope of the SAC curves.