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

investment in fixed cost physical capital—knowing that different choices about capital investment in the
present will cause it to end up with different short-run average cost curves in the future.

FIGURE 7.10 From Short-Run Average Cost Curves to Long-Run Average Cost Curves The five different short-run

average cost (SRAC) curves each represents a different level of fixed costs, from the low level of fixed costs at
SRAC1 to the high level of fixed costs at SRAC5. Other SRAC curves, not in the diagram, lie between the ones that are
here. The long-run average cost (LRAC) curve shows the lowest cost for producing each quantity of output when

fixed costs can vary, and so it is formed by the bottom edge of the family of SRAC curves. If a firm wished to produce
quantity Q3, it would choose the fixed costs associated with SRAC3.
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