The long run average cost curve
A) is the sum of a firm's short run average cost curves.
B) shows the lowest average cost facing a firm as it increases output changing both its plant and labor force.
C) initially rises when output increases and then falls when output increases.
D) always falls as output increases.
E) always rises as output increases.

Question

Quizplus · Accepted Answer

The long run average cost curve shows the lowest average cost facing a firm as it increases output by changing both its plant and labor force. It is not the sum of a firm's short run average cost curves, nor does it always fall or always rise as output increases. The shape of the curve is determined by the relationship between economies of scale and diseconomies of scale. Initially, the curve may rise due to diseconomies of scale, but eventually, it will fall due to economies of scale, resulting in a U-shaped curve.

The Long Run Average Cost Curve