Firms Long Run Average Cost Curve

Hey guys, as promised, here's the link to the website that talks about the actual construction of a Long Run Average Cost Curve:

http://www.whitenova.com/thinkEconomics/lrac.html

The first couple of paragraphs is a nice recap of what we talked about in class. When you scroll down, you will see a paragraph titled "Interactive Graph". SRATC stands for Short Run Average Total Cost whereas the K's refer to different levels of capital. In this case, you may think of the K's as more factories. To use the applet you have to:

Start by clicking on Q1. The applet will give you two points on the two short run cost curves. You have to chose which one is the most efficient. In other words, suppose that the market dictated that you have to produce Q1: would it make sense for you to build that next factory or not? Thus, once you click on Q1, the applet gives you your cost choices and you chose the graph that corresponds to the right factory (i.e. SRATC curve). If you do that for all quantities, Q1 to Q6 and you get the correct answer, the applet will show you have the LRAC curve is constructed.

Let me know if you have any questions on using this.Thanks.