Which of the following pairs is correctly matched for the long run cost curves?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → LRAC is falling – LRMC is less than LRAC
A falling average needs a marginal value below it, and a rising average needs one above it. The same holds for LRAC and LRMC.
Option (1) LRAC is rising – LRMC is less than LRAC — Incorrect. When LRAC is rising, LRMC is greater than LRAC.
Option (2) First unit of output – LRMC is greater than LRAC — Incorrect. For the first unit, LRMC and LRAC are the same.
Option (3) Minimum point of LRAC – LRMC cuts LRAC from above — Incorrect. LRMC cuts LRAC from below at its minimum.
Option (4) LRAC is falling – LRMC is less than LRAC — Correct. Only a lower marginal cost can pull the average down.
NCERT (2026-27): “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.” |