Question

(7,90) Chairs per day AVC AFC 2 3 Labour (workers per day) a) The marginal cost curve first declines and then increases because of The decline in the gap between ATC and AVC as output expands Constant marginal revenue Increasing, then diminishing, marginal utility Increasing, then diminishing, marginal returns b) The vertical distance between ATC and AVC measures Marginal cost Economic profit per unit Average fixed cost Total fixed cost c) When the marginal cost curve lies above the AVC curve, ATC rises above the ATC curve, ATC rises below the ATC curve, total fixed cost falls below the AVC curve, total fixed cost increases

Answer 1

A. Option 4. Increasing and then decreasing marginal returns

Explanation: This happens because when production takes place, marginal return first increases and then declines.

B. Option 3. Average fixed cost

Explanation: At any output level, average total cost = average fixed cost + average variable cost.

C. Option 2. Above the ATC curve, ATC rises.

Explanation: ATC rises when MC is above ATC. ATC falls when MC is below ATC.