The correct answer is: A. Long-run average cost curve.
The long-run average cost curve (LRAC) is the lowest cost per unit that a firm can produce at each level of output when all inputs are variable. It is the envelope of the short-run average cost curves (SACs).
The SAC curve shows the lowest cost per unit that a firm can produce at each level of output when only some inputs are variable. The SAC curve is U-shaped because of the law of diminishing returns.
The LRAC curve is always below the SAC curves because the firm can always produce more efficiently in the long run when all inputs are variable.
The LRAC curve is also flatter than the SAC curves because the firm can spread its fixed costs over a larger output in the long run.
The LRAC curve is the firm’s long-run planning curve. It shows the firm the lowest cost per unit that it can produce at each level of output. The firm will choose the output level where the LRAC curve is tangent to the demand curve.