A short- run average total cost curve will touch the long- run average cost curve at a level of output only
A)where the short- run cost curve is downward sloping.
B)by coincidence.
C)when the quantity of the fixed factor being employed is at the optimal level for that level of output.
D)where the short- run cost curve is upward sloping.
E)where the short- run cost curve is downward- sloping and the quantity of the fixed factor is optimal.

Question

Quizplus · Accepted Answer

The long-run average cost curve represents the lowest possible average cost for producing each level of output in the long run, when all factors of production are variable. In the short run, however, at least one factor of production (usually capital) is fixed, and as a result, short-run average total cost curves are U-shaped, with a minimum point (the point of diminishing returns). When the quantity of the fixed factor is at the optimal level for a particular level of output, then the long-run average cost curve and the short-run average total cost curve will touch each other at that level of output. This is because, at the optimal level of the fixed factor, the short-run cost curve is at its lowest point, and this point coincides with the long-run average cost curve. Therefore, the correct answer is C.

A Short- Run Average Total Cost Curve Will Touch the Long-