Thus far we have not considered the long run in cost theory. We will now think a bit about the long run, using the concept of average cost.
We have defined "the long run" as "a period long enough so that all inputs are variable." This includes, in particular, capital, plant, equipment, and other investments that represent long-term commitments. Thus, here is another way to think of "the long run:" it is the perspective of investment planning.
So let's approach it this way: Suppose you were planning to build a new plant -- perhaps to set up a whole new company -- and you know about how much output you will be producing. Then you want to build your plant so as to produce that amount at the lowest possible average cost.
To make it a little simpler we will suppose that you have to pick just one of three plant sizes: small, medium, and large. Here's the way they look in a picture:
