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How can I create a long-run average cost curve for the following data? See the data on economies of scale in car production in the table. Car...

It should not be very difficult to draw a diagram using this information. Look in your book for an example of a long-run average cost (LRAC) curve.  You can also find one in the link below.  When you look at an LRAC, you will see that the horizontal axis shows the quantity of product that you are producing.  Meanwhile, vertical axis shows the cost of producing those goods. With this information in hand, you should be able to draw your own LRAC based on the information in the question.


Of the information you provided, only the number of cars produced and their average cost matter.  The percent change in the cost of producing the cars is not relevant to this question. On your horizontal axis, put the number of cars produced.  On the vertical axis, put the index of average unit costs.  Then plot all five of the points you have.  Once you have plotted your points, draw a curve that goes through all of them. You now have your LRAC.


Please note that this must not be a full LRAC.  A full LRAC has to be u-shaped.  It has to have a negative slope where the industry is enjoying economies of scale and a positive slope later on when the industry is experiencing diseconomies of scale.  The data in this question do not show the section of this LRAC where the slope is positive.

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