Short-run average cost exceeds long-run average cost only when there a

Short-run average cost exceeds long-run average cost only when there are economies of scale.

Indicate whether the statement is true or false

ANSWER

False. Short-run average costs exceed long-run average costs because the firm is locked into a certain input mix in the short run that may not be cost minimizing when all inputs are variable. This condition holds regardless of the presence of economies of scale.