Long run incremental cost
Long Run Incremental Cost ( LRIC ) stands for long-term incremental costs of a business entity (increment). The modification Long Run Average Incremental Cost ( LRAIC ) stands for the average long-term incremental costs.
LRIC have played a special role in the regulatory economy since 1960 because the instrument of marginal costs was not practical there. The business entity (increment) to which the LRIC relates can affect an entire company or only a part.
The standard is intended to record the costs of an increment that a provider incurs as a result of the fact that he currently and in the future provides and markets a certain service within a given portfolio, whereby long-run is used to express that these are costs that in the long term they are all variable - variable in the sense that they may or may not arise depending on the circumstances or depend on the company's decisions regarding the development of business areas, investments, etc. at the given times - and by incremental that it This concerns the costs of this specific service, which arise in addition to the costs incurred for all other services in the portfolio and usually provided by the provider network.
detection
The LRIC is determined in top-down models by adjusting the total costs of an existing increment for the inefficiencies. In bottom-up models, the LRIC is determined from the basic data, in the case of telecommunications, for example, “demand as it is manifested in the market, a network that can satisfy this demand and has been mapped on the computer according to the best technology, and the applicable prices for the inputs. "
literature
- Werner Neu, Gabriele Kulenkampff: Long-Run Incremental Cost and Pricing in the Telecommunications Sector - with Special Consideration of Technical Change, WIK Scientific Institute for Infrastructure and Communication Services, No. 323 / August 2009