1) The relationship between Marginal Cost and Average Total Cost is best describ
ID: 2439152 • Letter: 1
Question
1) The relationship between Marginal Cost and Average Total Cost is best described as:
(more than 1 correct answer)
A) If marginal cost is decreasing, then average total cost is also decrasing
B) when marginal cost is higher than average total cost, average total cost is falling
C) when marginal cost is lower than average total cost, average total cost is falling
D) when marginal cost is higher than average total cost, average total cost is rising
2)
CURVE 2 (Acerage ficed cost curve/ Average total cost/ Average variable cost/ total cost)
CURVE 2 (Acerage ficed cost curve/ Average total cost/ Average variable cost/ total cost)
3) Match each average cost type with their patterns as production increases.
As production increases, average fixed costs.
(Decrease/ always incease/ increase then decrease/ decrease then increase)
As production increases, average variable costs.
(Decrease/ always incease/ increase then decrease/ decrease then increase)
As production increases, average total costs
(Decrease/ always incease/ increase then decrease/ decrease then increase)
4) Match the following types of profit with their correct definition
A) Normal profit
(Standaed or average level of profit for the industry/ Profit above normal-super profit/ Accounting profit)
B) Economic profit
(Standaed or average level of profit for the industry/ Profit above normal-super profit/ Accounting profit)
C) Economic loss
(Standaed or average level of profit for the industry/ Profit above normal-super profit/ Accounting profit)
Explanation / Answer
(1) Options (A), (C) and (D).
When MC is falling, ATC is also falling. After MC reaches its minimum (at a point where ATC is still falling), MC starts rising, intersecting ATC at the lowest point of ATC curve and then both MC and ATC start rising, while MC is higher than ATC.
(2)
Curve 3 - Average fixed cost (AFC curve is continuously falling without touching any axes)
Curve 2 - Average variable cost (AVC lies in between ATC and AFC curves)
Curve 1 - Average total cost (ATC)
(3)
(i) As production increases, average fixed cost decreases.
(ii) As production increases, average variable cost first decreases, then increases (U-shaped curve).
(iii) As production increases, average total cost first decreases, then increases (U-shaped curve).
(4)
(A) Normal profit - Standard or average level of industry profit
(B) Economic profit - Profit above normal profit
(C) Economic loss - Profit below normal profit
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