Long-run average cost is never greater than short-run average cost because in the long run,
A) capital costs equal zero.
B) the firm can move to the lowest possible isocost curve.
C) wages always increase over time.
D) wages always decrease over time.

Question

Quizplus · Accepted Answer

In the long run, the firm can adjust all its inputs, including capital, and can choose the most efficient combination of inputs. This enables the firm to move to a lower isocost curve, which in turn leads to a lower average cost. Thus, the long-run average cost is always less than or equal to the short-run average cost, but never greater than it.

Long-Run Average Cost Is Never Greater Than Short-Run Average Cost