=+13.6* In Graph 13.3, we illustrated the relationship between short-run average expenditure AEk

, short-run average cost ACk

, and long-run average cost ACLR curves for a particular level of capital. The particular level of capital chosen in Graph 13.3 is that level that makes the AEk curve tangent to the ACLR at its lowest point.

A. Consider a firm whose technology has decreasing returns to scale throughout and who faces a recurring fixed cost. Denote the level of capital chosen in the long run at the lowest point of the long run AC as k*.

a. Replicate the short-run MC and long-run AC curves from Graph 13.3. Where in your graph does the long-run MC curve lie?