Multiple choice

Which of the following statements concerning the long run average cost curve is false?

  1. It represents the least cost input combination for producing each level of output.

  2. It is derived from a series of short run average cost curve.

  3. The short run cost curve at the minimum point of the long run average cost curve represents the least-cost plant size for all levels of output.

  4. As output increases, the amount of capital employed by the firm increases along the curve.

Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Option C is false because at the minimum point of the LRAC curve, the corresponding SRAC curve represents the least-cost plant size ONLY for that specific output level, not for all levels of output. Different output levels require different plant sizes. The LRAC curve is an envelope of SRAC curves, where each point is tangent to a different SRAC curve representing the optimal plant for that output.

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