Suppose a firm with the usual U-shaped cost curves is producing a level of output such that its short-run costs are as follows: ATC = $0.37 per unit
AVC = $0.32 per unit
AFC = $0.05 per unit
MC = $0.43 per unit
Given these short-run costs,as the firm increases its output,which of the following statements is true?
A)Marginal product of the variable factor must be decreasing.
B)Marginal product of the variable factor must be increasing.
C)The point of diminishing average product of the variable factor has not yet been reached.
D)Average product of the variable factor must be increasing.
E)Marginal product of the variable factor is at its minimum point.

Question

Quizplus · Accepted Answer

Since the MC is greater than the AVC, each additional unit of output costs more to produce than the previous one. This implies that the marginal product of the variable factor must be decreasing. Therefore, option A is the correct answer. Options B, C, D, and E are not correct because they are not consistent with the given information about the cost curves.

Suppose a Firm with the Usual U-Shaped Cost Curves Is