Page 134 - DECO101_MICRO_ECONOMICS_ENGLISH

Unit 9: Cost Concepts

The LTC curve gives the least total cost for various levels of output when all the factors of Notes

production are variable. Its shape is such that the curve is first concave and then convex as looked
from the output axis. As seen above its shape follows from the operations of the varying degrees
of returns of scale, given the factor prices.
The relationship between LAC and LMC follow from that of LTC curve. Both LAC and LMC are
U-shaped. Further, the following relationships hold good

1. At the point of inflection on LTC curve (A), LMC takes the minimum value.
2. At the point of kink of LTC curve (B) – where the slope of the straight line from origin to
the LTC curve is the minimum – LAC assumes the minimum value.
3. LAC is the least when LMC = LAC.

4. LAC curve is falling when LMC < LAC.
5. LAC curve is rising when LMC > LAC.
Figure 9.7

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