Can You Give The Derivation Of Long Run Average Cost (LAC) And Short Run Average Cost (SAC) Planning Curve Of A Firm?

In short run a firm has to be contented with the given plant. It means that in short run only a specific level of output can be produced at the lowest cost. Whenever more than such output is produced the average cost of the firm will rise. But in the case of long run a firm can change its plants. If a firm has to increase its production in the long run it can install new plants or make decisions to enhance its output considering many a plants at its disposal.

As long run consist of so many short run periods. Accordingly LAC will come into being by joining different minimum short run average costs. Now we are in a position to define long run average cost curve. It is a curve which shows minimum average costs of different levels of output in the long run when the firm can change both the labor and the capital. But it must be kept in view that every point at on LAC curve represents average cost in the short run but only a particular point of LAC in the long run represents an optimal output while the plant where LAC are minimum is known as optimal plant.

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