At Every Output Level, a Firm's Short-Run Average Cost (SAC)

question 98

Multiple Choice

At every output level, a firm's short-run average cost (SAC) equals or exceeds its long-run average cost (LAC) because:

• A) diminishing returns apply in the short run.
• B) returns to scale only exist in the long run.
• C) opportunity costs are taken into account in the short run.
• D) there are at least as many possibilities for substitution between factors of production in the long run as in the short run.
• E) none of the above

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Definitions:

Externalities

Economic side effects or consequences that affect uninvolved third parties; can be either positive or negative.

Market Prices

The current price at which a good or service can be bought or sold in a market.

Efficient Level

The efficient level refers to a state of resource allocation where it is impossible to improve the situation of one party without worsening the situation of another, often associated with maximizing output without wasting resources.

Output

The total amount of goods or services produced by a firm or country.