Class discussion: What would you recommend for a firm who's Short Run Average Cost (SRAC) curve

is well above the Long Run Average Cost (LRAC)curve? Can this firm survive and what should this firm do? Support and justify your answer.

Normally, the long run average cost curve is a U-shaped but is flatter than the short run curve. The long run average cost curve represents per unit cost of producing a good or service in the long run when all inputs are variable. Short average curves show the alternative scales of plant. The company will operate the scale of plant which is most profitable to it for the long run. If the company likes to stay in business, it needs to expand its business to achieve productive efficiency at the optimum scale of output. Lowering fixed costs by increasing production, the fixed cost gets distributed over the output as product is expanded. When the company achieves the optimum level and lower costs, the company can cut down the price of the product. This is called economies of scale. When the company achieves all of the above, it leads to more affordable product, higher market share and revenues, which lead to more money to invest and improve its production.