Consider the following statements about the long run cost curves of a typical firm:
(A) For the first unit of output, LRMC and LRAC are the same.
(B) The LRMC curve is ‘U’-shaped.
(C) The LRMC curve cuts the LRAC curve from above at the minimum point of LRAC.
(D) To the right of the minimum point of LRAC, LRMC is higher than LRAC.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A), (B) and (D) only
(A) For the first unit of output, LRMC and LRAC are the same. — Correct. For one unit, the cost of that unit is both the average and the marginal cost.
(B) The LRMC curve is ‘U’-shaped. — Correct. LRMC is below LRAC while LRAC falls and above it while LRAC rises, so it is ‘U’-shaped.
(C) The LRMC curve cuts the LRAC curve from above at the minimum point of LRAC. — Incorrect. LRMC cuts LRAC from below, not from above, at the minimum of LRAC.
(D) To the right of the minimum point of LRAC, LRMC is higher than LRAC. — Correct. Once LRAC is rising, LRMC must be above it.
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.” “Shapes of the Long Run Cost Curves … LRAC reaches its minimum at q1. To the left of q1, LRAC is falling and LRMC is less than the LRAC curve. To the right of q1, LRAC is rising and LRMC is higher than LRAC.” |