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Chapter 20: Problem 3

When \(\mathrm{MC}\) is rising but still below ATC, then __________ ( LO5) a) ATC is declining b) ATC is constant c) ATC is rising d) there is no way of determining what ATC is doing

Short Answer

Expert verified
a) ATC is declining

Step by step solution

01

1. Understand the concepts of MC and ATC

The Marginal Cost (MC) represents the additional cost incurred by producing one more unit of a good. The Average Total Cost (ATC) is the total cost of production divided by the number of units produced. Both MC and ATC are important concepts in microeconomic cost analysis and are used to analyze a firm's production decisions.
02

2. Relationship between MC and ATC

MC and ATC have a specific relationship when it comes to cost curves. When MC is below ATC, it pulls the ATC downwards, meaning that ATC is declining. When MC is above ATC, it pulls the ATC upwards, implying that ATC is rising. This relationship is based on the fact that, as additional units are added to production, whether the average cost increases or decreases depends on the cost of those additional units.
03

3. Determine how ATC behaves when MC is rising but still below ATC

Now, let's look at the given condition in the exercise: MC is rising but still below ATC. If MC is below ATC, it means that ATC is declining because MC is pulling it down. Even if MC is rising, as long as it remains below ATC, the ATC curve will keep on declining. Therefore, the correct answer is: a) ATC is declining

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Most popular questions from this chapter

We find price by dividing __________ (LO8) a) total revenue by output b) output by total revenue c) total cost by output d) output by total cost

In the short run, a firm has two options: __________ (LO8) a) stay in business or go out of business b) stay in business or shut down c) operate or go out of business d) operate or shut down

As output rises, the difference between ATC and AVC __________ (LO5) a) rises b) stays the same c) falls

The marginal cost curve intersects the average variable cost curve at the __________ (LO5) a) shut-down point b) break-even point c) maximum profit point

Which of these statements is false? (LO8) a) When the firm shuts down, output is zero. b) When variable cost is zero, output is zero. c) When output is zero, total cost is zero. d) None of these is false.
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