Long-Run Average Total Cost

A company’s long-run average total cost is the cost per unit of production averaged over the long run (however defined). It represents the blended cost of production on the basis that the company has the time and flexibility to optimise its cost structure through changes to its supply chain, economies of scale or other factors. In the long run, all costs are variable. Ideally, the long-run average total cost will reduce over time as the company optimises the cost structure of its business. Increasing production when a company has negotiated fixed costs by definition lowers LRATC.