The tangency points between the long-run average cost curve (LRAC)and the short-run average cost curves (SRAC)are
A) always at the minimum of the SRACs.
B) never at the downward portion of the SRACs.
C) always at the maximum of the SRACs.
D) not necessarily at the minimum of the SRACs.

Question

Quizplus · Accepted Answer

The tangency points between the LRAC and SRAC curves are not necessarily at the minimum of the SRAC curves. This is because the SRAC curve represents the cost of producing a given amount in the short run while the LRAC curve represents the cost of producing the same amount over a longer period of time in which all inputs can be changed. Therefore, the position of the minimum of the SRAC curve may not correspond to the point where the LRAC curve is tangent to it.

The Tangency Points Between the Long-Run Average Cost Curve (LRAC)and