A firm's long-run average cost curve is comprised of:
A)the minimum points of each of the firm's short-run average cost curves.
B)the lower envelope of the firm's short-run average cost curves.
C)the minimum points of each of the firm's short-run marginal cost curves.
D)the series of points where the short-run marginal cost curves intersect the short-run average cost curves.

Question

Quizplus · Accepted Answer

The long-run average cost curve represents the lowest cost at which the firm can produce any level of output in the long run. It is determined by the firm's choice of production technology and scale of operation. In the short run, the firm is constrained by some of its inputs, such as capital or labor, which leads to different short-run average cost curves at different levels of output. The long-run average cost curve is the envelope of all these short-run average cost curves, which shows the minimum cost at each level of output for the firm in the long run. Therefore, the correct answer is B, the lower envelope of the firm's short-run average cost curves. The long-run average cost curve represents the lowest possible average cost for the firm to produce any given level of output in the long run. In the short run, a firm may have different levels of average cost for different levels of output due to fixed inputs. However, in the long run, the firm can adjust all inputs and choose the most efficient combination, leading to a minimum efficient scale of production. Therefore, the long-run average cost curve is the lower envelope of the firm's short-run average cost curves, representing the minimum average cost for each level of output.

A Firm's Long-Run Average Cost Curve Is Comprised Of