Which of the Following Statements Best Explains Why Long-Run Average

question 79

Multiple Choice

Which of the following statements best explains why long-run average cost is never greater than short-run average cost?

• A) In the long run, tangency of the isocost and isoquant is attainable. This is not necessarily true in the short run.
• B) In the long run, diseconomies of scale might not occur, but in the short run diminishing marginal returns do.
• C) In the long run, the cost of capital declines because the firm is able to pay down some of its debts.
• D) In the long run, the average cost curve need not be U-shaped, but in the short run it is.

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Definitions:

Annual Percentage Rate

The annual rate charged for borrowing or earned through an investment, inclusive of any fees or additional costs.

Periodic Interest

Interest that is paid or calculated at regular intervals over the life of a loan or investment.

Stated Interest

The interest rate declared on a bond or loan that represents the actual annual cost of borrowing to the borrower.

Compound Interest

Interest earned on both the initial principal and the interest reinvested from prior periods.