What is Long-Run Average Total Cost – LRATC

Long-Run Average Total Cost – LRATC

LRATC is long run average cost per unit. In this metric all inputs make a variable which is expectable in long run because of companies’ capability to change some components such are factories or to manage to get efficiency to the optimal level. Due to all this, long term unit costs are in most cases less then short term unit costs. For example, if a company invests in a new machine that will help produce more products at the same time, the price per unit of output will eventually become lower then with the old machine.
Determining the lower bounds of LRATC is a goal for management as well as for investors.