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Long Run Average Cost Curves (LRAC) are an important part of Theory of the Firm. They are used to describe the average costs of a company over the long term, which is what differenciates them from Marginal Cost Curves (MC). In a perfectly competitive market the output level will corespond with the lowest point in the LRAC curve. This is because in a perfectly competitive market companies don't make any profit.


The LRAC is U-shaped, with the downward sloping part representing economies of scale, and the upward sloping part representive diseconomies of scale.

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