The long-run average cost curve is called a planning curve because it shows what happens to costs when
Answer Details
The long-run average cost curve is called a planning curve because it shows what happens to costs when different sizes of plants are built. In the long run, all inputs are variable, and the firm has the flexibility to adjust its plant size. The long-run average cost curve illustrates the lowest possible average cost for each level of output, given the choice of plant size. Therefore, it is a useful tool for firms in planning their production in the long run, as it shows how costs will change when the scale of production is varied.