Use the following to answer question:
-(Figure: The Profit-Maximizing Firm in the Short Run)Use Figure: The Profit-Maximizing Firm in the Short Run.Which statement is TRUE?

Question

Use the following to answer question: 
-(Figure: The Profit-Maximizing Firm in the Short Run)Use Figure: The Profit-Maximizing Firm in the Short Run.Which statement is TRUE?

Quizplus · Accepted Answer

AFC is represented by the vertical distance between curve N and curve O at any level of output. Curve N represents total fixed costs, and curve O represents total costs (fixed costs plus variable costs) at different levels of output. Therefore, the vertical distance between N and O represents variable costs, and the vertical distance between M and N represents total fixed costs (AFC). Option A is incorrect because curve M represents average fixed costs (AFC), and curve N represents total fixed costs. Option C is incorrect because the figure only illustrates the short run because fixed costs are present. Option D is incorrect because quantity q₂ is to the right of the shut-down point, which is where the marginal cost curve intersects the average variable cost curve.

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