The long run total cost (TC) schedule of a firm is given below:Output…

The long run total cost (TC) schedule of a firm is given below:

Output (units)	1	2	3	4	5
TC (Rs)	60	100	132	168	215

Which of the following is correct?

Answer & explanation

Correct answer: option 4

The correct answer is Option (4) → LRAC is lowest at 4 units; at 5 units, LRMC (Rs 47) is above LRAC (Rs 43).

Given:

Output: 1, 2, 3, 4, 5 units

TC: Rs 60, 100, 132, 168, 215

LRAC is TC divided by output. LRMC is the change in TC from one more unit.

\( LRAC: 60,\ 50,\ 44,\ 42,\ 43 \)

\( LRMC: 60,\ 40,\ 32,\ 36,\ 47 \)

LRAC is lowest at 4 units (Rs 42). At 5 units it rises to Rs 43, because LRMC (Rs 47) is above it.

Option (1) LRAC is lowest at 4 units; at 4 units, LRMC is above LRAC. — Incorrect. At 4 units LRMC is Rs 36, which is below LRAC (Rs 42).

Option (2) LRAC is lowest at 5 units, as LRMC stays below LRAC at every output. — Incorrect. LRAC rises at 5 units, since LRMC there is above LRAC.

Option (3) LRAC is lowest at 3 units, the output at which LRMC is also lowest. — Incorrect. LRMC is lowest at 3 units, but LRAC is still falling there (44 to 42). LRAC is lowest at 4 units.

Option (4) LRAC is lowest at 4 units; at 5 units, LRMC (Rs 47) is above LRAC (Rs 43). — Correct. Both readings match the working.

NCERT (2026-27): “3.7.2 Long Run Costs In the long run, all inputs are variable. There are no fixed costs. The total cost and the total variable cost therefore, coincide in the long run. Long run average cost (LRAC) is defined as cost per unit of output, i.e. …”

“Shapes of the Long Run Cost Curves … Let us check how the LRMC curve looks like. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC curve is therefore a ‘U’-shaped curve. It cuts the LRAC curve from below at the minimum point of the LRAC.”