A Firm Can Minimize Cost by

question 4

Multiple Choice

A firm can minimize cost by

• A) picking the bundle of inputs where the lowest isocost line touches the isoquant.
• B) picking the bundle of inputs where the isoquant is tangent to the isocost line.
• C) picking the bundle of inputs where the last dollar spent on one input gives as much extra output as the last dollar spent on any other input.
• D) All of the above.

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Definitions:

Decreasing Returns to Scale

A situation in which a proportional increase in all inputs leads to a less than proportional increase in output, indicating reduced efficiency as scale of production expands.

Long-Run Equilibrium

A state in which all factors of production and inputs can be adjusted by firms, leading to a situation where no firm has an incentive to change its output or production method.

LRAC Curve

Long-Run Average Cost Curve, a graphical representation showing the minimum cost at which any output level can be produced in the long run.

Exiting Firms

Businesses that are leaving a particular market due to various reasons such as unprofitability, strategic realignment, or market saturation.