Why is the long-run average total cost (LRATC) curve called the ...

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Why is the long-run average total cost (LRATC) curve called the planning curve?

Question 2

What are the earnings of a resource with a perfectly elastic supply curve called?
 a. Transfer earnings
  b. Dividends
  c. Economic rent
  d. Capital gain
  e. Interest

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Answer to Question 1

The LRATC curve is often called a planning curve, because it represents the cost data relevant to the firm when it is planning policy relating to scale of operations, output, and price over a long period of time. At a particular time, a firm already in operation has a certain plant and must base its current price and output decisions on the costs with the existing plant. However, when the firm considers the possibility of adjusting its scale of operations, long-run cost estimates are necessary.

Answer to Question 2

a