CA Foundation P4 · Chapter 3 · Question 12 of 15
The long-run average cost curve is called an 'envelope curve' because:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) It is tangent to a series of short-run average cost curves, each representing a different plant size
Explanation
The LAC shows the least cost of producing each output when all inputs, including plant size, can be varied. It envelops the SAC curves by being tangent to each of them. It touches the minimum point of only the SAC that is tangent at the LAC's own minimum (the optimum plant).
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