The shape of the long-run cost curve, in Figure 7.10, is fairly common for many industries. The left-hand
portion of the long-run average cost curve, where it is downward- sloping from output levels Q1 to Q2 to Q3,
illustrates the case of economies of scale. In this portion of the long-run average cost curve, larger scale leads
178 7 • Production, Costs, and Industry Structure

to lower average costs. We illustrated this pattern earlier in Figure 7.9.

In the middle portion of the long-run average cost curve, the flat portion of the curve around Q3, economies of
scale have been exhausted. In this situation, allowing all inputs to expand does not much change the average

cost of production. We call this constant returns to scale. In this LRAC curve range, the average cost of

production does not change much as scale rises or falls. The following Clear It Up feature explains where

diminishing marginal returns fit into this analysis.

CLEAR IT UP
{"source": "downloads\\business\\economics\\Microeconomics3e.pdf", "creationdate": "2022-12-07T14:15:44-06:00", "title": "Principles of Microeconomics 3e", "producer": "Prince 14.2 (www.princexml.com)", "total_pages": 597, "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "file_size_mb": 26.99, "creator": "PDFMiner", "file_name": "Microeconomics3e.pdf", "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "uploaded_via": "batch_uploader", "file_type": ".pdf", "upload_timestamp": "2026-02-07T15:24:38.309401", "moddate": "2022-12-07T14:23:05-06:00", "batch_upload": true}