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Long Run Average Total Cost LRATC

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Definition of 'Long Run Average Total Cost LRATC'

The acronym LRATC stands for Long Run Average Total Cost. This is a financial business measurement that calculates the average cost per unit of output over the long run in models where all input costs are considered to be variable.

Business costs over the long term are usually lower than when measured over the short term because the initial investment cost in machinery and hardware can be amortized over a long period.

If Intel (INTC), for example, were to build a new large chip factory in Malaysia then over time the economies of scale and the time over which the costs are spread would reduce the costs when compared to its older factories giving it a lower LRATC.

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