Q.Explain the Long-run cost curves with suitable diagram.

The long-run average cost curve is an envelope of many short-run average cost curves; it is U-shaped, shows minimum average cost for each output, and is called the planning curve.

In the Tamil Nadu HSC Class-11 Economics syllabus, long-run cost curves are explained as follows. In the long run there are no fixed factors — the firm can vary the scale of plant. So for every possible plant size there is a separate Short-Run Average Cost (SAC) curve.

Long-Run Average Cost (LAC) curve:

• The LAC curve is drawn as a curve that just touches (is tangent to) each of the SAC curves. Because it wraps around and encloses all the SAC curves from below, it is called the envelope curve.
• Describing the diagram in words: on a graph with output on the horizontal axis and cost on the vertical axis, several U-shaped SAC curves (SAC1, SAC2, SAC3 …) are drawn side by side; the LAC is a flatter, U-shaped curve drawn tangent to each SAC. At the minimum point of the LAC, it is tangent to the SAC of the optimum plant at that SAC's own minimum point; to the left of the minimum the LAC touches each SAC to the left of that SAC's lowest point, and to the right it touches each SAC to the right of its lowest point. …