The long- run average cost curve is an envelope curve, with each point associated with a short- run average cost curve
A) lying below it.
B) intersecting that point.
C) tangent at that point.
D) at its minimum point.
E) crossing that point from above.

Question

Quizplus · Accepted Answer

The long-run average cost curve is an envelope curve that is tangent to each point on a corresponding short-run average cost curve. This is because in the long-run, firms have the flexibility to adjust their inputs and production processes to minimize their costs. As a result, the short-run average cost curve will always lie above the long-run average cost curve, and the point of tangency represents the minimum cost for that particular level of output.

The Long- Run Average Cost Curve Is an Envelope Curve