Question

What can be said about the short run cost structure of a film production company like Clint Eastwood's company Malpaso if it follows the theory of the firm?

A. The marginal cost curve will always intersect the average and average variable cost curves at their lowest point (minimum)

B. The total cost curve reflects the productivity of labor, but the short run cost structure does not.

C. The long run cost structure gets it shape from the efficiency of labor (the three kinds of efficiency).

D. The “U-shape” of the long run cost curves reflects the shape of the average product curve of labor.

Answer 1

In the short run, Total cost depends on labor because labor is one of the variable factor while in the long run all the factors have impact on Total cost so it implies that option B and C are wrong. Also the U shape of curves reflects the total and marginal product and not the average of labor. So option D is also not correct.

In the short run, marginal cost curve cuts the average total cost and average variable cost at their lowest level. So:

Option A is the correct answer