When the long-run average cost is at its minimum, the long-run marginal cost:
A) is also at its lowest value.
B) is decreasing.
C) is greater than long-run average cost.
D) is at its highest value.
E) is equal to long-run average cost.

Question

Quizplus · Accepted Answer

In the long run, firms can adjust their inputs and production processes to minimize their average cost. When long-run average cost is at its minimum, it means that the firm has optimized its production process to minimize costs given its input prices. At this point, the long-run marginal cost is equal to the long-run average cost. If the long-run marginal cost was higher than the long-run average cost, then the firm could reduce its costs by producing less output, and if it was lower than the long-run average cost, the firm could produce more output at a lower cost. Therefore, the optimal level of output occurs where long-run marginal cost equals long-run average cost.

When the Long-Run Average Cost Is at Its Minimum, the Long-Run