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The Long-Run Average Cost Curve: Evidence From The Bottled Water Industry

Author

Listed:
  • Bojan Mladenović

    (Faculty of Economics and Business, University of Belgrade, Serbia Business Development Manager, Magroni DOO Skopje, North Macedonia)

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.

Suggested Citation

  • Bojan Mladenović, 2025. "The Long-Run Average Cost Curve: Evidence From The Bottled Water Industry," Proceedings of the 5th International Conference "Economic and Business Trends Shaping the Future" 2024 017, Faculty of Economics-Skopje, Ss Cyril and Methodius University in Skopje.
    • Handle: RePEc:aoh:conpro:2025:i:6:p:231-240
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    File URL: https://repository.ukim.mk/bitstream/20.500.12188/34500/1/0017%20THE%20LONG-RUN%20AVERAGE%20COST%20CURVE%20EVIDENCE%20FROM%20THE%20BOTTLED.pdf
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    Keywords

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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L67 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Consumer Nondurables: Clothing, Textiles, Shoes, and Leather Goods; Household Goods; Sports Equipment

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