In the short run, as output increases,
A) the difference between average total cost and average variable cost decreases.
B) the difference between total cost and average variable cost decreases.
C) marginal cost eventually decreases.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

As output increases in the short run, fixed costs are spread over more units of output, which decreases average total cost (ATC) but does not affect average variable cost (AVC) since AVC only includes variable costs. Therefore, the difference between ATC and AVC decreases.

In the Short Run, as Output Increases