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True, False or Uncertain: "Long-run cost is always lower than that of short-run cost". Explain.

True, False or Uncertain: "Long-run cost is always lower than that of short-run cost". Explain.

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Answer #1

True, Long run cost will always be lower than short run cost.

In the long run all costs becomes variable while in the short run costs are variable and fixed in nature and based on that in the short run there are various cost curves at different level of output while in the long run firm decides its output based on lowest level of cost at various levels of short run production curves, therefore long run graph will be the curve passing from all points of lowest level of production in short run. Hence, this long run cost curve is always lies below short run cost curves.

SRAC = Short run aggregate cost

LRAC = Long run aggregate cost

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