Question

1. When marginal cost of production rises above the average total cost of production, we know that:

            A.        

the firm has economies of scale

            B.        

average total cost is decreasing

            C.        

marginal cost is negative

            D.        

average total cost is increasing

2. Average total cost curves are usually depicted as downward sloping at low levels of output because:

            A.        

Average fixed costs are declining

            B.        

Opportunity costs decline as output (Q) increases

            C.        

Average fixed costs are increasing

            D.        

Marginal costs are increasing

3. The manufacturing process for electric automobiles is subject to learning curves, so future average cost of production declines as current production increases. Which of the following actions by the manufacturer would take advantage of the learning curve character?

            A.        

Increase current production above the profit maximizing level in order to gain cost advantages in the future

            B.        

Decrease current production below the profit maximizing level in order to earn higher profits in the future

            C.        

Decrease current production below the profit maximizing level in order to save money now and in the future

            D.        

Increase current production above the profit maximizing level in order to avoid higher costs in the future

1. When marginal cost of production rises above the average total cost of production, we know that:

            A.        

the firm has economies of scale

            B.        

average total cost is decreasing

            C.        

marginal cost is negative

            D.        

average total cost is increasing

2. Average total cost curves are usually depicted as downward sloping at low levels of output because:

            A.        

Average fixed costs are declining

            B.        

Opportunity costs decline as output (Q) increases

            C.        

Average fixed costs are increasing

            D.        

Marginal costs are increasing

3. The manufacturing process for electric automobiles is subject to learning curves, so future average cost of production declines as current production increases. Which of the following actions by the manufacturer would take advantage of the learning curve character?

            A.        

Increase current production above the profit maximizing level in order to gain cost advantages in the future

            B.        

Decrease current production below the profit maximizing level in order to earn higher profits in the future

            C.        

Decrease current production below the profit maximizing level in order to save money now and in the future

            D.        

Increase current production above the profit maximizing level in order to avoid higher costs in the future

Answer 1

'Option D' is correct.

When the Marginal Cost (MC) curve lies above the Average Total Cost (ATC) curve then it means that the cost of producing one additional unit of that good is more than the average total cost of that good. The MC curve always intersects the ATC curve at its minimum because the marginal cost less than average total cost depicts that an increase in marginal cost will lead to a rise in the average total costs as well. Conversely, if the marginal cost is more than the average total cost then the average cost is rising. So, the MC curve intersects the ATC curve at its minimum and the average total cost of production will increase if marginal cost lies above the average total cost.