The findings of Johnston in the short run suggest that in the short run the actual cost conditions over the normal range pf production are best depicted by a linear total variable cost function with constant marginal cost, This is further proved by the finding with the fall in the average total cost, which later tends to flatten along with constant MC. As regards the findings in the long run, that LRAC of production declines as output rises, may be proved with the help of the existence of the economies of scale. As in industries related with electricity substantial economies of size exist. As per which a large plant is always considered most efficient. However, after reaching- a point beyond which any addition made in the inputs leading to an increase in the output the average cost function tends to fall.
1 Answer November 19, 2019