The point of tangency between the short- run average total cost (SRATC)curve and the long- run average cost (LRAC)curve occurs
A)at a point where average total cost is falling but the marginal cost is rising.
B)only when the LRAC curve is at its minimum.
C)at a point where both the average total cost and the marginal cost are rising.
D)at an output level for which the quantity of the fixed factor is optimal.
E)at the point of minimum SRATC.

Question

Quizplus · Accepted Answer

In the long run, firms can adjust all inputs, and the LRAC curve represents the lowest possible cost of producing each output level. The point of tangency between the SRATC and LRAC occurs when the firm is using the optimal quantity of fixed factors for that level of output, minimizing costs in both the short and long run.

The Point of Tangency Between the Short- Run Average Total