Final answer:
The firm has reached its optimal production level when the LRAC curve reaches its minimum. If the LRAC curve is flat over a range of output, the firm is exhibiting constant returns to scale.
Step-by-step explanation:
When the Long-Run Average Cost (LRAC) curve reaches its minimum, the firm has reached its optimal production level. This is because, at the minimum point of the LRAC curve, the firm is producing at the least cost possible given the scale of production. Additionally, if the curve is flat over some range of output, it indicates that the firm is exhibiting constant returns to scale. This flat portion of the curve signifies that changes in the scale of all inputs result in a proportional change in output, meaning the average cost of production remains the same as the firm's scale of production increases or decreases.
For instance, of the LRAC Curve, when the curve has a clear minimum point at output level R, a firm producing at this level will have lower average costs than firms producing at any other output level. Conversely, if the curve has a flat bottom between output levels R and S, firms producing anywhere within this range are operating efficiently and can compete effectively, showcasing constant returns to scale.