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Chapter 20: Problem 5

If AVC is declining, then __________ (LO5) a) marginal cost must be less than AVC b) marginal cost must be greater than ATC c) AVC must be greater than AFC

Short Answer

Expert verified
a) Marginal cost must be less than AVC

Step by step solution

01

Analyze Option (a)

Check if marginal cost must be less than AVC when AVC is declining. To confirm this option, we can use the relationship between MC and AVC. Recall that when the MC is less than AVC, it will cause the AVC to decrease. Therefore, this option seems to be valid.
02

Analyze Option (b)

Check if marginal cost must be greater than ATC when AVC is declining. Recall that when the MC is less than ATC, it will cause the ATC to decrease. So, MC being greater than ATC will not cause a decline in AVC. This option is not valid.
03

Analyze Option (c)

Check if AVC must be greater than AFC when AVC is declining. This option implies that the average variable cost should be more than the average fixed cost during the decline in AVC. However, there is no specific relationship between AVC and AFC in this situation. It may or may not be true. Thus, this option is not valid. #Conclusion# After analyzing all the options, we can conclude that when AVC is declining: \( \underline{\textbf{a) Marginal cost must be less than AVC}}\)

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Most popular questions from this chapter

A firm has a fixed cost of \(\$ 100,000\), and variable cost is \(\$ 90,000\) at an output of one. How much is marginal cost at an output of one? (LO2) a) \(\$ 10,000\) b) \(\$ 90,000\) c) \(\$ 100,000\) d) \(\$ 190,000\) e) There is insufficient information to answer the question.

Which statement is false? \((\mathrm{LO} 4,5)\) a) \(\mathrm{AFC}\) plus \(\mathrm{AVC}\) equals \(\mathrm{ATC}\). b) Marginal cost equals AVC at an output of one. c) AVC equals ATC at an output of one. d) None is false.

Statement 1: AVC can never be higher than ATC. Statement 2: \(\mathrm{AVC}\) and marginal cost are equal at an output of one __________ (LO4) a) Statement 1 is true, and statement 2 is false. b) Statement 2 is true, and statement 1 is false. c) Both statements are true. d) Both statements are false.

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

In Figure 1 , if you want to produce an output of 100 , in the long run you will choose a plant whose size is represented by __________\((\mathrm{LO8})\) a) \(\mathrm{ATC}_{1}\) b) \(\mathrm{ATC}_{2}\) c) \(\mathrm{ATC}_{3}\) d) \(\mathrm{ATC}_{4}\) e) \(\mathrm{ATC}_{5}\)
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