Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What happens to the marginal cost curve in the long run regarding its slope?

1. It must always be increasing

2. It may no longer be upward sloping

3. It reflects average variable costs

4. It becomes horizontal

The correct answer is: It may no longer be upward sloping

In the long run, the marginal cost curve may no longer be upward sloping due to changes in the production environment. Unlike the short run, where constraints such as fixed inputs lead to increasing marginal costs as output rises, the long run allows for all factors of production to be variable. As firms can adjust all inputs, they might experience economies of scale, where the marginal cost of producing an additional unit decreases with increasing production. Consequently, the marginal cost curve can initially decline before it begins to rise, reflecting a more complex relationship with output levels. This flexibility in input adjustment can lead to periods where increasing output does not result in a corresponding increase in the marginal cost, allowing for both upward and downward-sloping sections in the marginal cost curve over different output levels. Therefore, it is accurate to say that in the long run, the marginal cost curve may not always be upward sloping, as economies of scale might lead to varying slopes at different production levels.