Which of the following pairs is correctly matched?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Long run break-even point — Minimum of LRAC
The break-even point is at the minimum of average cost: LRAC in the long run, SAC in the short run. The shut down point is at the minimum of AVC in the short run and of LRAC in the long run.
Option (1) Long run break-even point — Minimum of LRAC — Correct. Here the firm earns only normal profit.
Option (2) Short run break-even point — Minimum of AVC — Incorrect. Minimum AVC is the short run shut down point. The short run break-even point is the minimum of SAC.
Option (3) Long run shut down point — Minimum of LRMC — Incorrect. The long run shut down point is the minimum of LRAC.
Option (4) Short run shut down point — Minimum of SAC — Incorrect. It is the minimum of AVC, where SMC cuts AVC.
NCERT (2026-27): “4.4.3 The Shut Down Point … Therefore, along the supply curve as we move down, the last price-output combination at which the firm produces positive output is the point of minimum AVC where the SMC curve cuts the AVC curve. Below this, there will be no production. This point is called the short run shut down point of the firm. In the long run, however, the shut down point is the minimum of LRAC curve.” “4.4.4 The Normal Profit and Break-even Point … The point of minimum average cost at which the supply curve cuts the LRAC curve (in short run, SAC curve) is therefore the break-even point of a firm.” |