Which of the following statements regarding a firm's long-run average total cost (LRATC)curve and its short-run average total cost (SRATC)curve is true?
A)The shape of the LRATC is affected by the law of diminishing returns.
B)The SRATC, but not the LRATC, can be used by a firm's managers for planning.
C)The LRATC shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed.
D)The contribution of average fixed cost to LRATC is greater than its contribution to SRATC.

Question

Quizplus · Accepted Answer

The LRATC curve shows the lowest cost at which a firm is able to produce a given level of output when no inputs are fixed, meaning that all inputs can be adjusted to achieve the most efficient production process. The SRATC curve, on the other hand, only reflects the cost of production in the short run when at least one input is fixed. The shape of the LRATC is affected by various factors such as economies of scale, learning effects, and technological advancements, but not by the law of diminishing returns. Finally, both the SRATC and LRATC include average fixed cost, but the contribution of average fixed cost to LRATC decreases as the level of output increases, while it remains constant in SRATC.

Which of the Following Statements Regarding a Firm's Long-Run Average