Long-Run Average Total Cost

The long-run average total cost curve envelopes the set of U-shaped short-run average total cost curves corresponding to different plant sizes. In the long run, a firm can select the optimal plant size for the quantity it wishes to produce. The firm selects the plant size that gives the lowest average total cost. If there are only a few plant sizes to choose from, the long-run average total cost curve will be scalloped. As the number of possible plant sizes increases, the long-run average total cost curve becomes smooth.