The long-run average cost curve represents the
A) lowest possible production cost given a fixed quantity of machinery and capital stock.
B) lowest possible production cost given the current factory size.
C) the best possible combination of inputs for a large quantity of output.
D) the best possible combination of inputs for any quantity of output.
E) the best possible combination of inputs for output that takes at least a year to produce.

Question

Quizplus · Accepted Answer

The long-run average cost (LRAC) curve represents the best possible combination of inputs for any quantity of output, as it shows the minimum average cost at each level of output when all inputs are variable and can be adjusted to achieve the most efficient production process. It is not tied to a fixed quantity of machinery or capital stock (A), current factory size (B), a specific quantity of output (C), or a specific time frame (E).

The Long-Run Average Cost Curve Represents the