At every output level, a firm's short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because:
A) diminishing returns apply in the short run.
B) returns to scale only exist in the long run.
C) opportunity costs are taken into account in the short run.
D) there are at least as many possibilities for substitution between factors of production in the long run as in the short run.
E) none of the above

Question

Quizplus · Accepted Answer

In the long run, firms can adjust all inputs and substitute between them to minimize costs, leading to lower or equal costs compared to the short run where some inputs are fixed.

At Every Output Level, a Firm's Short-Run Average Cost (SAC)