Question

1. The long run average total cost shows what happens to average (per unit) total cost as a firm grows in size (adds more capital or increases its plant size). True or false?

2. In the short run, at least one input is variable and one input is fixed. True or false?

3. If marginal product is less than average product, average product must be falling. True or false?

4. In the long run, all inputs are variable. True or false?

Answer 1

Question 1

In long-run, firm can change the amount of capital as well. In other words, in long-run, firm can build bigger plant or can purchase additional plant and equipment.

So, the long-run average total cost shows the change in average total cost as firm changes its scale of production.

Thus, the given statement is True.

Question 2

Short-run is said to be the time period pertaining to production process in which firms increases output by chaging the quantity of other factors of production while keeps the quantity of atleast one factor fixed.

So, in short-run, atleast one input has to be fixed while others can be kept variable.

Hence, the given statement is False.

Question 3

The relationship between marginal product and average product indicates that as marginal product become less than the average product, average product tends to decline.

Hence, the given statement is True.

Question 4

Long-run is said to be the time period pertaining to the production process in which all inputs are taken as variable.

This means firm can change the quantity of all factors of production.

Hence, the given statement is True.