The shape of a firm's long-run average cost curve is determined by
A)the degree to which each input encounters diminishing marginal productivity.
B)the underlying nature of the firm's production function when all inputs are able to be varied.
C)how much the firm decides to produce.
D)the way in which the firm's expansion path reacts to changes in the rental rate on capital.

Question

Quizplus · Accepted Answer

The shape of a firm's long-run average cost curve is determined by the underlying nature of the firm's production function when all inputs are able to be varied. This means that the firm's technology, the returns to scale, and the extent of indivisibilities in production will determine the shape of the long-run average cost curve.

The Shape of a Firm's Long-Run Average Cost Curve Is