Refer to the following:

A firm produces 4,000 units of output using 500 workers. Marginal cost is $10, the wage rate is $160, and total fixed cost is $100,000.

-What output is 4,000 units,
A) average variable cost is decreasing.
B) average variable cost is increasing.
C) average total cost is decreasing.
D) average total cost is increasing.
E) both a and c

Question

Refer to the following:

A firm produces 4,000 units of output using 500 workers.  Marginal cost is $10, the wage rate is $160, and total fixed cost is $100,000.

-What output is 4,000 units,
A) average variable cost is decreasing.
B) average variable cost is increasing.
C) average total cost is decreasing.
D) average total cost is increasing.
E) both a and c

Quizplus · Accepted Answer

If the output is increasing while the total cost is decreasing, it means the firm is achieving economies of scale. Therefore, both the average variable cost and average total cost are decreasing. Therefore, the correct answer is choice E.

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