Which of the following statements most accurately makes the distinction between the long run and the
Very-long run with respect to the long-run average cost LRAC) curve?
A) In the long run, the LRAC curve is shifting down, whereas in the very -long run the firm is moving along the existing LRAC curve.
B) In the long run, the firm is moving along the existing LRAC curve, whereas in the very -long run, the LRAC curve is shifting down.
C) In the long run, the LRAC curve is shifting up, whereas in the very-long run the firm is moving along the existing LRAC curve.
D) In the long run, the firm is moving along the existing LRAC curve, whereas in the very -long run, the LRAC curve is shifting up.
E) There is no distinction between the long run and the very-long run with respect to the LRAC curve.

Question

Quizplus · Accepted Answer

In the long run, the firm has the flexibility to adjust all inputs, including the size of the plant, whereas in the very-long run, it can also change the technology it uses. Initially, the firm will select a particular plant size and technology based on the prevailing market conditions. As output expands, the firm can continue to increase the scale of production, but it will eventually encounter diminishing returns to scale. As a result, the LRAC curve will increase. However, in the very-long run, the firm has the option of switching to a different, more efficient technology, which would cause the LRAC curve to shift down.

Which of the Following Statements Most Accurately Makes the Distinction