where possible, so as to produce at the lowest possible long-run average cost.

Economies of scale refers to a situation where as the level of output increases, the average cost decreases.

Constant returns to scale refers to a situation where average cost does not change as output increases.

Diseconomies of scale refers to a situation where as output increases, average costs also increase.

The long-run average cost curve shows the lowest possible average cost of production, allowing all the inputs

to production to vary so that the firm is choosing its production technology. A downward-sloping LRAC shows

economies of scale; a flat LRAC shows constant returns to scale; an upward-sloping LRAC shows diseconomies

of scale. If the long-run average cost curve has only one quantity produced that results in the lowest possible
184 7 • Self-Check Questions

average cost, then all of the firms competing in an industry should be the same size. However, if the LRAC has a
{"producer": "Prince 14.2 (www.princexml.com)", "creator": "PDFMiner", "title": "Principles of Microeconomics 3e", "file_hash": "830b81f41611ac67a490444dbb5d6aed292224606965b06965b914443c93331a", "source": "downloads\\business\\economics\\Microeconomics3e.pdf", "batch_upload": true, "upload_timestamp": "2026-02-07T15:24:38.309401", "source_file": "downloads\\business\\economics\\Microeconomics3e.pdf", "moddate": "2022-12-07T14:23:05-06:00", "total_pages": 597, "uploaded_via": "batch_uploader", "creationdate": "2022-12-07T14:15:44-06:00", "file_size_mb": 26.99, "file_name": "Microeconomics3e.pdf", "file_type": ".pdf"}