Which of the following statements about the average total cost curve is false?
A) it is initially downward sloping because increases in quantity make the average fixed cost smaller
B) it eventually becomes upward sloping because the law of diminishing returns sets in
C) it is always downward sloping because the average fixed costs will always decrease as quantity increases
D) the marginal cost curve crosses the average total cost curve at the point at which average total cost is minimized

Question

Quizplus · Accepted Answer

The statement that the average total cost curve is always downward sloping because the average fixed costs will always decrease as quantity increases is false. While the average fixed cost will decrease as quantity increases, the average variable cost may increase and eventually become larger than the average fixed cost, causing the average total cost curve to increase. Therefore, the average total cost curve is initially downward sloping due to decreasing average fixed costs, but eventually becomes upward sloping due to increasing average variable costs.

Which of the Following Statements About the Average Total Cost