Long-Run Average Total Cost - LRATC

AAA

DEFINITION of 'Long-Run Average Total Cost - LRATC'

A business metric that represents the average cost per unit of output over the long run, where all inputs are considered to be variable.

Long-term unit costs are almost always less than short-term unit costs because in a long-term time frame, companies have the flexibility to change big components of their operations, such as factories, to achieve optimal efficiency. A goal of both company management and investors is to determine the lower bounds of LRATC.

INVESTOPEDIA EXPLAINS 'Long-Run Average Total Cost - LRATC'

For instance, if a manufacturing company builds a new, larger plant for production, it is assumed that the LRATC per unit would eventually become lower than at the old plant as the company takes advantage of certain economies of scale.

RELATED TERMS
  1. Economies Of Scale

    The cost advantage that arises with increased output of a product. ...
  2. Marginal Cost Of Production

    The change in total cost that comes from making or producing ...
  3. Long Run Incremental Cost - LRIC

    Forward-looking incremental costs that can be accounted for by ...
  4. Long Run

    A period of time in which all factors of production and costs ...
  5. Economics

    A social science that studies how individuals, governments, firms ...
  6. Short Run

    In economics, it is the concept that within a certain period ...
RELATED FAQS
  1. No results found.
Related Articles
  1. Economics

    Economics Basics

    Learn economics principles such as the relationship of supply and demand, elasticity, utility, and more!
  2. Options & Futures

    Explaining The World Through Macroeconomic Analysis

    From unemployment and inflation to government policy, learn what macroeconomics measures and how it affects everyone.
  3. Personal Finance

    What Drives Consumer Demand for Tesla?

    Tesla did not invent the electric vehicle market, but it has brought to it elements of luxury and elite status. But what really drives demand for Teslas?
  4. Investing

    Opportunity Cost

    Every action has a cost, even the ones you don't pursue. Find out how this is calculated.
  5. Fundamental Analysis

    How Influential Economists Changed Our History

    Find out how these five groundbreaking thinkers laid our financial foundations.
  6. Economics

    How Fannie Mae And Freddie Mac Were Saved

    These mortgage giants had to be put under government conservatorship, driving home the gravity of the subprime crisis.
  7. Economics

    The Economics Of Labor Mobility

    Loosening labor restrictions has both good and bad effects for a country and its workers.
  8. Economics

    What Is Opportunity Cost And Why Does It Matter?

    Economists suggest that the "opportunity cost" of any decision, the value of the next-best alternative, is crucial to making sound choices.
  9. Active Trading

    Competitive Advantage Counts

    What's the best indicator of a company's future success? Its ability to succeed when others fail.
  10. Trading Strategies

    5 Lessons From The Recession

    The bear market of 2008 was a game-changer for many investors. Find out what lessons you can take away from it.

You May Also Like

Hot Definitions
  1. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  2. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  3. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  4. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  5. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  6. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
Trading Center