The lowest possible average total cost of producing a particular level of output, allowing for optimal selection of all factors of production is defined by a

The lowest possible average total cost of producing a particular level of output, allowing for optimal selection of all factors of production is defined by a. long run average total cost curve.

The long-run average total cost curve tells us the lowest amount of total cost incurred for each unit of output. The average total cost changes with the output level. In the long-run, the average total cost consists of only the average variable cost. The fixed cost in the production is already absorbed by the products in the short-run.

Averagetotalcost(Long−run)=AveragevariablecostAveragetotalcost(Long−run)=Averagevariablecost

Since the long-run average total cost curve is able to illustrate the lowest total cost, determining the best combination of factors of product is easy.

Average Total Cost:

The average total cost shows the estimated total amount of cost incurred per unit of production. It consists of the average fixed costs and the average variable costs. The average total cost is different in the long-run and short-run equilibrium.