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In: Economics

Why is the long-run average total cost (LRATC) curve called the planning curve? Illustrate.

Why is the long-run average total cost (LRATC) curve called the planning curve? Illustrate.

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Expert Solution

In short-A long run average cost curve is known as a planning curve. This is because a firm plans to produce an output in the long run by choosing a plant on the long run average cost curve corresponding to the output. It helps the firm decide the size of the plant for producing the desired output at the least possible cost.Using the name planning curve indicates that the long-run average cost curve is used to "making plans" especially concerning the desired scale of operations of a firm. Long-run cost curve is a planning curve because it is a guide to the entrepreneur to plan his output. Long-run average cost is derived fromshort-run cost curves.In long run, the average cost curve is derived by joining all the minimum points of average cost curves at different levels of production. It is also known by other names such as planing curve or envelope curve.It helps the firm decide the size of the plant for producing the desired output at the least possible cost...thank you

Rahul Sunny answered 2 years ago
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