In the long run all factors of production become variable. The existing size of the firm can be increased in the case of long run. There are neither fixed inputs nor
fixed costs in the long run.
Long run average cost (LAC) is equal to long run total costs divided by the level of output.
LAC = LTC/Q
where, LAC denotes Long-Run Average Cost, LTC denotes Long-run Total Cost and Q denotes the quantity of output.Th e LAC curve is derived from short- run average cost curves. It is the locus of points denoting the least cost curve of producing the corresponding output. Th e LAC curve is called as ‘Plant Curve’ or ‘Boat shape Curve’ or ‘Planning Curve’ or ‘Envelop Curve’.