00:01
So let's start by illustrating and defining some concepts.
00:05
So long run average total cost is equal to cost minimum at every level of q if all fixed costs are adjustable.
00:28
Right so if we can vary every single fixed cost we get a long run equilibrium right so my long run cost curve usually looks something like this now in the short run average total cost cannot vary fixed costs right so in the short run you are stuck with a certain amount of say capital or certain size factory.
01:01
So that means that for every choice of fixed costs, you get a different short run average cost curve, but this minimum on the long run average, right, corresponds to some fixed cost.
01:21
So whatever that fixed cost is, if you happen to have that fixed cost, there must be a short run average cost curve that is tangent to it, right? so at the optimal size, they're equal.
01:41
So if you have exactly the right amount of capital or the exact right amount of fixed costs, it doesn't matter whether you're in the short run or the long run.
01:50
If you already have the perfect amount, in both cases, you can produce at the minimum point.
01:55
So the answer to a is a, right? at the minimum of the long run average cost curve, there is a tangent short run average cost curve that reflects being at the perfect place in the short run and the long run.
02:11
So that is for one...