Question

The long-run ATC curve is often called the firm's is ..................

• A. capital-expansion path.
• B. planning curve.
• C. total-product curve.
• D. production possibilities curve.

Hint:

ATC minus AVC isolates one specific cost component by definition.

Answer 1

The Correct Option is B

In the long run, every input a firm uses becomes variable, which means the firm can choose whichever plant size is most cost-efficient for each level of output it wants to produce.
The long-run average total cost curve is essentially the "envelope" of all the short-run ATC curves for different plant sizes, tracing out the lowest achievable average cost at every output level.
Because it helps a firm decide which plant size to build for an expected future output, the LRATC curve is commonly called the firm's "planning curve", matching option 2.