Long run marginal cost
Also called: LRMC · Topic: Production Function, Returns and Costs · NCERT: Class 12, Ch 3 "Production and Costs"
Meaning
Long-run marginal cost is the addition to total cost from producing one more unit when all inputs can be changed: LRMC = TC(q) − TC(q − 1). Adding up all LRMCs gives total cost. LRMC equals LRAC at the first unit. It is U-shaped and cuts the LRAC curve from below at LRAC's minimum. Constant returns to scale hold at that point, meaning output grows at the same rate as inputs.
Example
Suppose making 99 units costs ₹990 in total and making 100 units costs ₹1,000. The LRMC of the 100th unit is ₹10.
Don't confuse with
- Short-run marginal cost: measured with at least one input fixed. Its U-shape comes from the law of variable proportions. The U-shape of LRMC comes from returns to scale.
Related concepts
- Long run average cost
- Economies of scale
- Internal economies of scale
- External economies of scale
- Diseconomies of scale
- Economies of scope
- Minimum efficient scale