Long Run Average Cost Curve Analysis

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There are two types of cost curves: The Short Run Average Cost (SRAC) Curve and The Long Run Average Cost (LRAC) Curve. In this assignment, we will explain why the Long Run Average Cost (LRAC) Curve is a U-shaped. The long run is a period of time which involves only variable factors of production but not fixed cost. A firm in the long run can change its scale of production as it wishes, meaning it can produce its products at any level of output it decides. However, the firm cannot adjust its fixed cost due to the non existence fixed cost. The long run is the period in which firms decide and plan on how to minimise the average total cost. The Long Run Average Cost (LRAC) Curve is a curve of a firm that proves the minimum average total cost…show more content…
REASONS FOR INTERNAL ECONOMIES OF SCALE Internal economies of scale affects an individual organisation which can reduce the average costs of a firm. There are seven factors of internal economies of scale, which are: 1. Labour Economies When a firm expands, it employs more workers to their firm. Without any raise in the wage rate, specialisation can increase the efficiency of labour and also reduce the average cost. Moreover, the firm can give a better working environment and improved faclities, as well as an enhanced job prospects for its workers. Thereby, this will increase the average productivity of the labours and reduce the average cost per unit of output. For larger firms, they can split the production processes into separate tasks to boost the productivity. For instance, a firm can increase productivity in the production process by using the specialisation of labour in the mass production of motor vehicles and in the manufacturing electronic products. 2. Managerial…show more content…
This lead to many problems such as the problem of co-ordination. It will slow down and cumbersome the process of making decision. This will leads to a lower output and higher cost. Other than that, the problem is administrative problem that how the way worker works and inability to monitor works effectively in large firms. For examples, companies such as Digi or Celcom would have communication difficulties when the management level intends to communicate with the lower level workers. This is due to the companies being too large for one manager to control the
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