Suppose that the MP of a variable input exceeds its AP at current input quantities. Then, if one more unit of the variable input is used, which of the following is false?
A)SMC is less than AVC.
B)SAC will fall.
C)AP will increase.
D)AFC will increase.

Question

Quizplus · Accepted Answer

If the MP of a variable input exceeds its AP, it means that the last unit of input added is contributing more to output than the average of all units of input. This implies that the AP will increase if one more unit of the variable input is used, thus option C is true.

However, using one more unit of variable input will not affect the SMC. It will remain the same as the cost of producing an additional unit of output depends on the cost of all the inputs, not just the variable input. Thus, option A is false.

The SAC will depend on the relationship between the cost of the variable and fixed inputs. If the cost of the variable input is increasing, SAC will increase, but if it is constant, SAC will remain the same or fall. Therefore, option B is not necessarily true.

Finally, using one more unit of variable input will reduce the AFC because the fixed cost is spread over a larger quantity of output. Therefore, option D is false.

Suppose That the MP of a Variable Input Exceeds Its