average cost (SRAC) curves, each of which represents one specific level of fixed costs. More precisely, the

long-run average cost curve will be the least expensive average cost curve for any level of output. Figure 7.10

shows how we build the long-run average cost curve from a group of short-run average cost curves. Five short-

run-average cost curves appear on the diagram. Each SRAC curve represents a different level of fixed costs. For
example, you can imagine SRAC1 as a small factory, SRAC2 as a medium factory, SRAC3 as a large factory, and
SRAC4 and SRAC5 as very large and ultra-large. Although this diagram shows only five SRAC curves,
presumably there are an infinite number of other SRAC curves between the ones that we show. Think of this

family of short-run average cost curves as representing different choices for a firm that is planning its level of
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