The long-run average cost curve touches the short-run average cost curve at the A. minimum points of all…

Question

The long-run average cost curve touches the short-run average cost curve at the A. minimum points of all short-run average cost curves B. declining points of all short-run average cost curves C. minimum point of only one of the short run cost curve D. rising points of all short-run average cost curves

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Step 1: The long-run average cost (LRAC) curve is the lower envelope of all possible short-run average cost (SRAC) curves, each for a different fixed input (plant size) level. Step 2: For each output level, LRAC equals the minimum SRAC over all plant sizes. Step 3: The LRAC touches (is tangent to) each SRAC at the plant size optimal for that output, which occurs precisely at the minimum point of that SRAC (where short-run marginal cost equals SRAC). Step 4: Thus, across all SRACs, the points of tangency are the minimum points of all short-run average cost curves (not just declining/rising portions or only one curve). The correct description is option A. A

Answer

Step-by-step solution

The long-run average cost (LRAC) curve is the lower envelope of all possible short-run average cost (SRAC) curves, each for a different fixed input (plant size) level.

For each output level, LRAC equals the minimum SRAC over all plant sizes.

The LRAC touches (is tangent to) each SRAC at the plant size optimal for that output, which occurs precisely at the minimum point of that SRAC (where short-run marginal cost equals SRAC).

Thus, across all SRACs, the points of tangency are the minimum points of all short-run average cost curves (not just declining/rising portions or only one curve).

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