Question

How would you answer these questions with this topic:

The opportunity cost is the cost of next best alternative use. It is calculated in terms of other good. On the other hand, the sunk cost is the money spent on the goods which cannot be recovered i.e payment for rent, advertisement expenses etc.

Question - 4: Statement: The gap between average cost curve and average variable cost curve increases as production increases.

Argument:

I. Yes, the law of variable proportion applies.

II. No, It is because the average fixed cost decreases as the production increases.

Option: I. Argument I is correct.

II. Argument II is correct.

III. Both arguments are correct.

IV. Neither argument is correct.

Question -5: Statement: The average variable cost is minimum when marginal cost is equal to it.

Argument:

I. Yes, it is because the marginal cost curve cuts the average cost at its minimum point.

II. Yes, it is because the marginal cost is ratio of change in total variable cost and change in output.

Option:

I. Argument I is correct.

II. Argument II is correct.

III. Both arguments are correct.

IV. Neither argument is correct.

Answer 1

Facts of the case:

The opportunity cost is the cost of next best alternative use. It is calculated in terms of other good. On the other hand, the sunk cost is the money spent on the goods which cannot be recovered i.e payment for rent, advertisement expenses etc.

Question - 4: Statement: The gap between average cost curve and average variable cost curve increases as production increases.

Solution : II. Argument II is correct.

The gap between average cost curve and average variable cost curve increases as production increases. - This statement is wrong.

Argument: II. No, It is because the average fixed cost decreases as the production increases.

Question -5: Statement: The average variable cost is minimum when marginal cost is equal to it.

Solution : III. Both arguments are correct.

The average variable cost is minimum when marginal cost is equal to it.

Argument:

I. Yes, it is because the marginal cost curve cuts the average cost at its minimum point.

II. Yes, it is because the marginal cost is ratio of change in total variable cost and change in output.