Long run average cost

The long run average cost (LRAC or LAC) curve illustrates - for a given quantity of production - the average cost per unit which a faces in the long run (i.e. when no factors of production are fixed). LRAC curve is derived from a series of short run average cost curves. It is also called the 'envelope curve' since it envelops all the short run average cost curves.In perfect competition, the LRAC curve is flat, at the point of equilibrium- there are constant returns to scale. Typical LRACs are U-shaped, which means that up to a certain optimum point, there are economies of scale, and as production increases beyond this, there are diseconomies of scale. LRAC are generally flatter than short run average cost curve.
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the average cost per unit of a set or group of products in the long term. Note that the long-run average cost may be somewhat lower than the short term average cost because of the effects of greater production experience. See Average Cost; Short-Run Average Cost.