Assertion (A): The long run average cost (LRAC) curve of a firm is U-shaped.
Reason (R): In the long run, all the inputs of a firm can be varied.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Both (A) and (R) are true but (R) is not the correct explanation of (A).
Assertion (A): The long run average cost (LRAC) curve of a firm is U-shaped. — True. LRAC first falls, reaches a minimum and then rises.
Reason (R): In the long run, all the inputs of a firm can be varied. — True. In the long run there is no fixed factor.
Why R does not explain A?
R only says what the long run is. It does not say why average cost first falls and later rises. The real reason is returns to scale: a firm first has IRS, so average cost falls; later it has DRS, so average cost rises. CRS at the lowest point gives the bottom of the U.
NCERT (2026-27): “3.2 The Short Run and the Long Run In the long run, all factors of production can be varied. A firm in order to produce different levels of output in the long run may vary both the inputs simultaneously. So, in the long run, there is no fixed factor. …” “3.7.2 Long Run Costs … It is argued that in a typical firm IRS is observed at the initial level of production. This is then followed by the CRS and then by the DRS. Accordingly, the LRAC curve is a ‘U’-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed. …” |