THE LONG-RUN AVERAGE COST CURVE: EVIDENCE FROM THE BOTTLED WATER INDUSTRY

Bojan Mladenović
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Bojan Mladenović: Faculty of Economics and Business, University of Belgrade, Serbia Business Development Manager, Magroni DOO Skopje, North Macedonia

No 17, Proceedings of the 5th International Conference "Economic and Business Trends Shaping the Future" 2024 from Faculty of Economics-Skopje, Ss Cyril and Methodius University in Skopje

Abstract: This paper examines the shape of the long-run average cost (LRAC) curve, a central concept in production economics and strategic management. While traditional neoclassical theory suggests a U-shaped curve, with costs declining and then rising due to diseconomies of scale, a significant body of empirical research points toward an L-shaped curve, where costs decline to the minimum efficient scale (MES) and then stabilise. Drawing on both theoretical and empirical perspectives, this paper applies a case study of a bottled water manufacturer in North Macedonia. Using production and cost data collected over a ten-year period, the study tests whether the LRAC follows the U-shaped or L-shaped pattern. The results show that after a phase of declining costs, the firm reached a zone of constant returns to scale, supporting the L-shaped hypothesis. The findings contribute to the debate on cost curve theory and provide managerial implications for capacity planning and efficiency.

Keywords: Long-run average cost curve; Economies of scale; Bottled water industry; Cost efficiency; Case study (search for similar items in EconPapers)
JEL-codes: D24 L67 M41 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2025-12-15
New Economics Papers: this item is included in nep-agr and nep-eff
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Persistent link: https://EconPapers.repec.org/RePEc:aoh:conpro:2025:i:6:p:231-240

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