Business: Long-Run Average Cost Suppose that a company has a linear cost function (the...

Business: Long-Run Average Cost Suppose that a company has a linear cost function (the total cost of producing x units) C(x) = ax+b for constants a and b, where a is the unit or marginal cost and b is the fixed cost. Then the average cost per unit will be the total cost divided by the number of units: .

[Note: Since a is the marginal cost, you have proved the general business principle for linear cost functions: In the long run, average cost approaches marginal cost.]