Which of the following statements is correct regarding cost curves? There is more than one correct...

Which of the following statements is correct regarding cost curves? There is more than one correct answer to this question. You must mark all of the correct answers to receive full credit for this question.

The average fixed cost curve is continually downward sloping.

The slope of the total cost curve is marginal cost.

The marginal cost curve passes through the minimum points of the average total cost curve and average fixed cost curve.

The average total cost curve and average variable cost curve get closer to each other as you move from left to right in the graph.

The total fixed cost curve is a horizontal line.

The total variable cost curve and total cost curve have exactly the same shape.

Solutions

Expert Solution

Answer : Options A, B, D, E and F are the correct answer.

The average fixed cost continuously decrease when output increase. Hence the average fixed cost curve is downward sloping.

The slope of total cost curve = Marginal cost = Changes in total cost / Changes in quantity. So, the marginal cost is the slope of total cost curve.

The marginal cost curve intersect the average total cost curve (ATC) and average variable cost (AVC) curve at ATC and AVC's minimum point. The marginal cost curve never intersect the average fixed cost (AFC) curve at AFC's minimum point.

When output increase then the total cost and total variable cost both of them increase continuously. Hence when output level increase then the average total cost and average variable cost become closer to each other. In graph the movement from left to right indicates that the output level increases.

"The slope of total fixed cost curve is horizontal" because when output increase then the fixed cost does not change.

Total cost = Total fixed cost + Total variable cost

The total fixed cost curve is horizontal. Hence the total fixed cost is 0. As a result, Total cost = Total variable cost. For this reason the shape of total cost and total variable cost is same.

So, here except option C all other options are correct. Hence options A, B, D, E and F are the correct answer.

Rahul Sunny answered 1 year ago

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