Question

1) A manufacturer might decide not to adopt a new production technology even when it is profitable if it conflicts with the interests of the wholesaler who directly buys the product from the manufacturer.

2) Average fixed cost remains constant as quantity increases since the firm has to pay for fixed costs regardless of how many units it decides to produce

3) Average variable cost and marginal cost curves intersect at the lowest point on the average variable cost curve.

Answer 1

1) False

When new production technology is adopted then more production is done with less cost which increases profitability of manufacturer and wholesaler both because wholesaler also get product at less price.

2) False

Fixed cost remains same at each level of output but AFC decreases as output increases.

AFC = Fixed cost / Quantity

Increase in quantity decreases AFC.

3) True

AVC is U-shaped and MC cuts AVC at its minimum.