The long- run average cost (LRAC) curve shows
A) the operation of the law of diminishing returns.
B) the highest unit costs of producing a given output.
C) the same as the short- run average cost curve.
D) the lowest unit cost at which the firm can produce a given output.
E) what happens to the fixed costs in the long run.

Question

Quizplus · Accepted Answer

The long-run average cost (LRAC) curve shows the lowest unit cost at which the firm can produce a given output. This is because in the long run, a firm has the flexibility to adjust all of its inputs, including its capital equipment, and can therefore choose the most efficient combination of inputs to minimize costs. The LRAC curve is therefore U-shaped, with decreasing costs at low levels of output due to economies of scale, and increasing costs at high levels of output due to diseconomies of scale.

The Long- Run Average Cost (LRAC) Curve Shows