Planning Curve as Long Run Average Cost Curve

Explanation:

Planning Curve is also known as Long Run Average Cost Curve. It is a graphical representation of the relationship between the cost of producing a certain level of output and the scale of production. The planning curve shows the minimum average cost at which a given level of output can be produced in the long run, given the available technology and other factors of production.

Importance of Planning Curve:

Planning Curve is an important tool for firms to make long-term decisions on the scale of production, pricing, and investment in new technology. It helps firms to determine the optimal size of the firm, which is the size that minimizes the long-run average cost of production.

Factors Affecting Planning Curve:

The planning curve is affected by several factors, including:

1. Economies of Scale:
Economies of scale occur when the cost of production per unit decreases as the scale of production increases. This results in a downward sloping planning curve.

2. Diseconomies of Scale:
Diseconomies of scale occur when the cost of production per unit increases as the scale of production increases. This results in an upward sloping planning curve.

3. Minimum Efficient Scale:
The minimum efficient scale is the lowest level of output at which a firm can produce at the minimum efficient average cost. Below this level, the firm will experience diseconomies of scale, and above this level, the firm will experience economies of scale. The minimum efficient scale is the point at which the planning curve is at its lowest point.

Conclusion:

In conclusion, the planning curve is a graphical representation of the relationship between the cost of producing a certain level of output and the scale of production. It is also known as the Long Run Average Cost Curve. The planning curve is an important tool for firms to make long-term decisions on the scale of production, pricing, and investment in new technology. It is affected by several factors, including economies of scale, diseconomies of scale, and minimum efficient scale.