Question

Short run Total Cost (STC) can never be less than Long run Total Cost (LTC):

• A. Always true
• B. Often true
• C. Sometimes true
• D. Never true

Hint:

The LTC curve is the "envelope" of the STC curves. It wraps them from below, meaning LTC is always less than or equal to STC at any level of output.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
This is a core envelope theorem property in cost theory. It explores the comparative relationship between a firm's short-run and long-run total cost curves.

Step 3: Detailed Explanation:
Let us compare the operational conditions of the short run and the long run:
Long Run: All production inputs are completely variable. The firm can freely adjust all factors of production to achieve the absolute cost-minimizing input combination for any target output level. Thus, the Long-run Total Cost (LTC) represents the minimum possible cost of producing any level of output.
Short Run: At least one input (such as factory size, land area, or heavy machinery) is fixed. This fixed input restricts the firm's flexibility to substitute inputs.
If the fixed factor level happens to be the exact optimal level for producing a given output, the short-run total cost will equal the long-run total cost ($STC = LTC$).
If the fixed factor is at any level other than the optimal level, the firm must use a sub-optimal input combination, resulting in a short-run total cost greater than the long-run total cost ($STC > LTC$).
Consequently, the short-run total cost can never be less than the long-run total cost. This is expressed as: \[ STC \ge LTC \]

Step 4: Final Answer:
The statement is Always true.