A firm's short- run cost curves,as conventionally drawn,show that
A)AFC increases as output increases.
B)ATC decreases and then increases as output increases.
C)AVC decreases as long as MC AVC.
D)the MC curve intersects the AVC and ATC curves at their maximum points.
E)ATC = TFC + TVC.

Question

A firm's short- run cost curves,as conventionally drawn,show that
A)AFC increases as output increases.
B)ATC decreases and then increases as output increases.
C)AVC decreases as long as MC > AVC.
D)the MC curve intersects the AVC and ATC curves at their maximum points.
E)ATC = TFC + TVC.

Quizplus · Accepted Answer

The ATC curve initially decreases as output increases because the fixed costs are spread over larger and larger output. However, at some point, the diminishing marginal returns and increasing marginal costs cause the ATC curve to increase. This is known as the U-shaped ATC curve. The other statements are either incorrect (A, C, D) or tautological (E).

A Firm's Short- Run Cost Curves,as Conventionally Drawn,show That