Question 4 Is the following statement true, false, or ambiguous? Justify your answer. “Since long-run average...

Question 4

Is the following statement true, false, or ambiguous? Justify your answer. “Since long-run average cost cannot exceed short-run average cost, the long- run average cost curve is the locus of all of the minimum points of the short- run average cost curves.”

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Expert Solution

The given statement is true.

"Since long-run average cost cannot exceed short-run average cost, the long-run average cost curve is the locus of all of the minimum points of the short- run average cost curves.” :True

Since in the long-run there are no fixed factors of production, all the factors of production are variable, therefore, the short run average cost is always greater than or equal to the long-run average costs. A long-run average cost curve is U-shaped because with the increase in plant size, the average costs decreases due to the economies of scale. The long-run average cost curve represents the minimum average total costs at which the firm can produce any given level of output in the long-run. So, by joining the minimum points of all possible short-run average costs curves, we get long-run average cost curve. Therefore, the long- run average cost curve is the locus of all of the minimum points of the short- run average cost curves.

Rahul Sunny answered 1 year ago

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