A firm's long-run average cost curve is
A) the locus of points representing the minimum unit cost of producing any given rate of output when all inputs may be adjusted.
B) the locus of points made up of the minimum point on each short-run average total cost curve when only one input may be adjusted.
C) the envelope of the firm's variable cost curves.
D) identical to the lowest short-run average cost curve the firm has.

Question

Quizplus · Accepted Answer

The long-run average cost curve (LRAC) represents the lowest unit cost of producing any given rate of output when all inputs (both fixed and variable) can be adjusted. It is the envelope or the boundary of all the short-run average cost curves (SRAC), each of which represents the lowest unit cost of producing any given rate of output when only one input is adjusted while the others are held constant. Therefore, option A is the correct answer. Option B describes the SRAC curves, not the LRAC curve. Option C is incorrect because the LRAC curve includes both fixed and variable costs, not just variable costs. Option D is incorrect because the lowest SRAC may not be the same as the LRAC curve.

A Firm's Long-Run Average Cost Curve Is