The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3

-If a firm experiences constant returns to scale throughout:
A)the long-run average-total-cost curve is negatively sloped.
B)the short-run average-total-cost curves are tangential to the long-run average-total-cost curve at a point on their positively sloped portion.
C)the short-run average-total-cost curves are tangential to the long-run average-total-cost curve at their minimum points.
D)the short-run average-total-cost curves are tangential to the long-run average-total-cost curve at a point on their negatively sloped portion.
E)the long-run average-total-cost curve is positively sloped.

Question

The figure given below shows three Short Run Average Total Cost (SRATC) curves and the Long Run Average Total Cost (LRATC) curve of a firm.Figure 8.3
 
-If a firm experiences constant returns to scale throughout:
A)the long-run average-total-cost curve is negatively sloped. 
B)the short-run average-total-cost curves are tangential to the long-run average-total-cost curve at a point on their positively sloped portion. 
C)the short-run average-total-cost curves are tangential to the long-run average-total-cost curve at their minimum points. 
D)the short-run average-total-cost curves are tangential to the long-run average-total-cost curve at a point on their negatively sloped portion. 
E)the long-run average-total-cost curve is positively sloped.

Quizplus · Accepted Answer

When a firm experiences constant returns to scale throughout, the long-run average-total-cost (LRATC) curve is a smooth U-shaped curve. The short-run average-total-cost (SRATC) curves are U-shaped but are tangent to the LRATC curve at their minimum points. Therefore, the correct choice is C.

The Figure Given Below Shows Three Short Run Average Total