Q.A firm is considering three possible plant sizes to produce 100 units of output. The short-run average cost (SAC) of producing 100 units is ₹12 with Plant A, ₹9 with Plant B, and ₹11 with Plant C. Which plant size should the firm choose to produce 100 units in the long run, and why? What does this illustrate about the Long-Run Average Cost (LAC) curve?

In the long run a firm can choose its plant size, so it will always pick whichever plant gives the lowest cost for the output it wants to produce. …

In the long run, plant size is not fixed — the firm is free to build or choose whichever plant size suits the output level it plans to produce. The Long-Run Average Cost at a given output is defined as the lowest short-run average cost obtainable from any of the available plant sizes at that output.

Comparing the three options for 100 units: Plant A gives SAC = ₹12, Plant B gives SAC = ₹9, and Plant C gives SAC = ₹11. Since ₹9 is the lowest of the three, a profit-seeking firm would choose Plant B to produce 100 units. …

A common error is assuming a firm should choose the largest plant size available, on the belief that bigger always means cheaper; in fact the right choice depends entirely on which plant size is cheapest for the specific output being p …