Mock Quiz

Which of the following cost relationships is not true?

• AFC = AC - MC

• TVC = TC - TFC

• The change in TVC/the change in Q = MC

• The change in TC/ the change in Q = MC

When a firm increased its output by one unit, its AFC decreased. This is an indication that

• the law of diminishing returns has taken effect

• MC < AFC.

• AVC < AFC.

• the firm is spreading out its total fixed cost.

The relationship between MC and AC can best be described as

• when AC increases, MC starts to increase.

• when MC increases, AC starts to increase

• when MC decreases, AC decreases.

• when MC exceeds AC, AC increases

Which of the following relationships implies that a firm's short-run cost function is linear?

• MC = AC

• MC = AVC

• AC = AFC + AVC

• MC > AC

Carefully explain if the following statements are true, false, or uncertain.

 

a.   If average cost is increasing, marginal cost must be increasing.

b.   If there are diminishing returns, the marginal cost curve must be positively sloped.

c.   Marginal costs decrease as output increases because the firm can spread fixed costs over more units.