Assume a firm is operating at minimum average total cost in the short run. If there is a decrease in output, it follows that
A)marginal cost increases.
B)average fixed cost increases.
C)average total cost decreases.
D)average variable cost increases.

Question

Quizplus · Accepted Answer

When a firm decreases its output, its total fixed costs (such as rent, salaries, and machinery costs) remain the same. However, because these fixed costs are spread over a smaller quantity of output, the average fixed cost (total fixed costs divided by quantity) increases.

Assume a Firm Is Operating at Minimum Average Total Cost