Long-run Average Cost

The ratio of a firm's total production cost to its output when the firm has sufficient time to vary the quantities of all factors of production.

Let's suppose that Martha's Gourmet Cupcake is facing a sudden surge in demand for her cupcakes. In order to meet such a demand, in the short-run Martha's Gourmet Cupcake will have a rising average cost. But given time to buy food-preparation equipment short-run average total cost will fall.