Consider a firm's short-run cost curves.If average total cost is increasing as output rises,then
A)total fixed costs must be increasing.
B)average fixed costs must be increasing.
C)average variable cost must be increasing.
D)marginal cost must be below average total cost.
E)average total cost is no longer equal to the sum of average variable cost and average fixed cost.

Question

Quizplus · Accepted Answer

If average total cost is increasing as output rises, then one or both of the following costs must increase: average fixed cost and average variable cost. However, total fixed costs remain constant in the short run. Therefore, it must be that average variable cost is increasing as output rises. This means that the firm is facing diminishing marginal returns.

Consider a Firm's Short-Run Cost Curves