The long-run average cost curve
A) is always a downward sloping straight line.
B) is a curve which is tangent to each member of a set of short-run average cost curves.
C) is identical to the marginal cost curve.
D) should always be horizontal.

Question

Quizplus · Accepted Answer

The long-run average cost curve is a curve that is tangent to each member of a set of short-run average cost curves. This means that as the firm changes its scale of production, the long-run average cost curve intersects each short-run average cost curve at its minimum point, resulting in a smooth curve. The long-run average cost curve can be U-shaped, indicating economies and diseconomies of scale or a constant average cost, indicating constant returns to scale. Therefore, the long-run average cost curve cannot always be a downward-sloping straight line, identical to the marginal cost curve, or always horizontal.

The Long-Run Average Cost Curve