Final answer:
When a firm's short-run average cost equals its long-run average cost, it has achieved the cost-minimizing combination of inputs for that level of output, meaning choice C is correct.
Step-by-step explanation:
If a firm is producing the level of output at which short-run average cost equals long-run average cost, then the firm has chosen the cost-minimizing combination of inputs to produce this level of output. The long-run average cost (LRAC) curve represents the minimum cost at which a firm can produce any given level of output when all inputs are variable, and the firm is free to choose the amount of fixed and variable inputs. When a firm is operating at a point where the short-run average cost (SRAC) is equal to the long-run average cost, it implies that the firm has adjusted all of its inputs to produce a given level of output at the minimum possible cost, optimizing its production in the long run.
At other levels of output where LRAC does not equal SRAC, either the fixed inputs are too low (such as at SRAC2) or too high (such as at SRAC4), leading to higher average costs. Thus, being on the SRAC curve that intersects the LRAC at the current output level (on SRAC3 when producing Q3, for instance) means operating at the lowest cost, hence choice C is correct.