LRAC

Question 1

What is the definition of Long Run Average Cost?

Answer 1

The Long Run Average Cost (LRAC) is the per-unit cost of production when all inputs can be varied, typically depicted as the lowest cost of production for any given level of output.

Question 2

True or False: In the long run, all costs are variable.

Answer 2

True

Question 3

What shape does the Long Run Average Cost curve typically have?

Answer 3

The LRAC curve typically has a U-shape.

Question 4

Fill in the blank: The Long Run Average Cost curve is derived from the __________ of various short run average cost curves.

Answer 4

envelope

Question 5

Which of the following factors can lead to economies of scale? A) Increased production B) Decreased labor efficiency C) Higher fixed costs

Answer 5

A) Increased production

Question 6

What happens to the Long Run Average Cost as output increases up to a certain point?

Answer 6

It initially decreases due to economies of scale.

Question 7

At what point on the LRAC curve do diseconomies of scale typically occur?

Answer 7

Diseconomies of scale typically occur after the minimum point on the LRAC curve.

Question 8

Multiple Choice: Which of the following is NOT a reason for diseconomies of scale? A) Management inefficiencies B) Increased transportation costs C) Better technology

Answer 8

C) Better technology

Question 9

What is the relationship between Long Run Average Cost and production efficiency?

Answer 9

The LRAC reflects the most efficient scale of production for a firm.

Question 10

Short Answer: How can a firm achieve a lower Long Run Average Cost?

Answer 10

A firm can achieve a lower LRAC by increasing production and optimizing resource use, leading to economies of scale.