Explain why the curve between A and B looks different than the curve from A to C. Provide an example of how a firm could opt to follow the A to C curve instead of the A to B curve.

What will be an ideal response?

Student answers should note that the A to B curve is a short-run curve, while the A to C curve is a long-run curve. In the short run, a firm cannot change its fixed variables, so to increase production it may need to make less efficient use of its plant and therefore incur higher costs. In the long run, the size of the plant can be adjusted, making it possible to keep average costs steady. For example, in the short run a computer chip manufacturer might have to keep its plant open around the clock to boost production, forcing it to offer overtime pay and leading to greater wear on its machinery. In the long run, the firm can reach the same output level in more cost-effective ways, such as by opening a larger plant.