Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 7] COSTS OF PRODUCTION 167
(b)
Fig. 7-17
(c)
The LTC curve is the curve tangent to the STC curves. Note that, like the STC curves, the LTC curve is
S-shaped; but it starts at the origin, since in the long run there are no fixed costs. STC curves representing
larger scales of plant start higher on the vertical axis because of greater fixed costs. If instead of drawing
only five STC curves, we had drawn many (each corresponding to one of the many alternative plants that
the firm could build in the long run), then each point of the LTC curve would be formed by a point on the
STC curve that represents the most appropriate plant to produce that output (i.e., the plant which gives the
lowest possible cost to produce the particular level of output). Thus, no portion of the STC curves can
ever be below the LTC curve derived from them. Hence the LTC curve gives the minimum LTC to
produce any level of output. Also to be noted is that the LTC values for the various levels of output indicated
by the LTC curve of part (b) correspond to the LTC values found (by multiplying output by the LAC at
various levels of output) in Problem 7.15(a).
7.18 (a) Explain the shape of the LAC and LMC curves of Problem 7.15(b) and the relationship between
them from the shape of the LTC curve of Problem 7.17(b). (b) What would be the shape of the LAC
and LMC curves if the LTC curve were a straight line through the origin?
(a)
LAC is given by the slope of a line from the origin to various points on the LTC curve. This slope declines up
to point F (see Fig. 7-17) and rises thereafter. So the LAC curve Fig. 7-15 falls up to point F and then rises. On
the other hand, the LMC for any level of output is given by the slope of the LTC curve at that level of output.
The slope of the LTC curve of Fig. 7-17 falls continuously up to the output level of five units (the point of
inflection) and rises thereafter. So the LMC curve of Fig. 7-15 falls up to the output level of five units and
then rises. Finally, the slope of the LTC curve (i.e., the LMC) is less than the slope of a line from the
origin to the LTC curve (i.e., the LAC), up to point F (see Fig. 7-17). Thus, LMC is less than or below
LAC. At point F, the two slopes are the same, and LMC equals LAC. Past point F, the slope of the LTC