Which of the following statements best explains why long-run average cost is never greater than short-run average cost?
A) In the long run, tangency of the isocost and isoquant is attainable. This is not necessarily true in the short run.
B) In the long run, diseconomies of scale might not occur, but in the short run diminishing marginal returns do.
C) In the long run, the cost of capital declines because the firm is able to pay down some of its debts.
D) In the long run, the average cost curve need not be U-shaped, but in the short run it is.

Question

Quizplus · Accepted Answer

In the long run, firms are able to adjust their inputs and optimize their production process to achieve the lowest possible costs. This includes factors such as choosing the optimal combination of inputs, selecting the most efficient technology, and determining the optimal scale of production. Thus, in the long run, tangency of the isocost and isoquant is attainable, which ensures that long-run average cost is never greater than short-run average cost. This is not necessarily true in the short run, where firms may face fixed inputs and other constraints that limit their ability to optimize their production process.

Which of the Following Statements Best Explains Why Long-Run Average