Question

Which of the following statements is (are) correct?
(x) The average variable cost curve declines as quantity increases because variable costs always decrease as output increases.
(y) The average variable cost curve and average total cost curve will eventually intersect as output increases because average fixed cost eventually becomes negative.
(z) The marginal cost curve crosses the average total cost curve at the efficient scale, which occurs at the minimum point on the average total cost curve.
A. (x), (y) and (z) B. (x) and (y) only
C. (x) and (z) only D. (y) and (z) only
E. (z) only

Which of the following statements is (are) correct?
A. Long-run average total cost curves are often U-shaped because of increasing specialization of workers
at low levels of production and increasing coordination problems at high levels of production.
B. In the long run, fixed inputs become variable inputs.
C. When a factory is operating in the short run, total cost and variable cost are usually the same.
D. All of the above
E. A and B, only

Which of the following statements is (are) correct?
(x) If average fixed costs are falling, then the firm is necessarily experiencing economies of scale.
(y) Economies of scale occur when long-run average total costs fall as output increases and diseconomies
of scale occur when the long-run average total cost curve is upward sloping.
(z) If the firm’s long run average total cost curve is horizontal, then the firm is experiencing constant returns
to scale.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

Answer 1

Answers

E. (z) only

(z) The marginal cost curve crosses the average total cost curve at the efficient scale, which occurs at the minimum point on the average total cost curve.​​​​​​​

The marginal cost(MC) equals the average total cost(ATC) when the ATC is minimum,i.e., the efficient scale of production, and thus the MC curve cuts the ATC curve at its minimum point.

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E. (A) and (B) only

(A) Long-run average total cost curves are often U-shaped because of increasing specialization of workers. at low levels of production and increasing coordination problems at high levels of production.
(B) In the long run, fixed inputs become variable inputs.

In the long-run, there is no fixed inputs, and thus fixed costs. The fixed inputs become variable inputs in the long-run, and thus all costs in long-run are variable costs.

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A. (x), (y) and (z)​​​​​​​

All the three options below are true.

(x) If average fixed costs are falling, then the firm is necessarily experiencing economies of scale.
(y) Economies of scale occur when long-run average total costs fall as output increases and diseconomies of scale occur when the long-run average total cost curve is upward sloping.
(z) If the firm’s long run average total cost curve is horizontal, then the firm is experiencing constant returns.

When a firm experiences economies of scale, its average total cost of production, that includes average fixed cost , and average variable cost, decreases with the increase in output.When a firm experiences diseconomies of scale, its average total cost of production increases with the increase in output. When the long-run average total cost curve is downward sloping, the firm experiences economies of scale, and when the long-run average total cost curve is upward sloping, the firm experiences diseconomies of scale.

If the return to scale is same, i.e., proportionate change in output is same as the proportionate change in inputs, then the firm experiences constant returns to scale, and the long run average total cost curve becomes horizontal.

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