-The average total cost curves for plants A, B, C and D are shown in the above figure. It is possible that the long- run average cost curve runs through points
A) d, e and f.
B) b, d and e.
C) a, b and c.
D) c and d.

Question

-The average total cost curves for plants A, B, C and D are shown in the above figure. It is possible that the long- run average cost curve runs through points
A) d, e and f. 
B) b, d and e. 
C) a, b and c. 
D) c and d.

Quizplus · Accepted Answer

The long-run average cost curve (LRAC) represents the lowest cost at which a firm can produce any given level of output in the long run, when all inputs are variable. Points d, e, and f could represent the minimum efficient scale for plants A, B, and C respectively, indicating the most efficient scale of operation for each plant size. This suggests that as the firm increases its scale of production, it moves from operating at point d (optimal for plant A) to point e (optimal for plant B), and finally to point f (optimal for plant C), thus minimizing its costs at each level of output. This path through d, e, and f could represent the segments of each plant's average total cost curve that together form the envelope curve or the long-run average cost curve, showcasing economies of scale up to point f and possibly constant returns to scale beyond.

-The Average Total Cost Curves for Plants A, B, C