True or false: A firm should always produce at an output at which long-run avera

Question

True or false: A firm should always produce at an output at which long-run average cost is minimized. Explain. This statement is A. true because in the long run entry and exit will force firms to produce at lowest possible long-run average cost. B. false because in the short run this may not be possible with fixed factors of production. ° C. false because in the long run price is greater than long-run average cost. 0 D. true because in the short run firms will adjust their mix of inputs such that average costs are minimized. 0 E. false because in the long run firms will only maximize profit if the industry is competitive

Explanation / Answer

Ans: false because in the short run this may not be possible with fixed factor of production.

Explanation:

Under perfect competition, in the long run, a firm will produce where LAC is minimised. But in the short run it may not. For example, if the price is greater than the long run equilibrium price, the firm can maximize short run profit by producing the quantity which is more than minimum LAC quantity.

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