In the general textbook treatment, the firm's short run average variable and average total cost curves are U-shaped, while the average fixed cost curve is downward sloping over the entire range of output. Explain why
What will be an ideal response?
The U-shaped AVC and ATC curves reflect the effects of diminishing marginal returns. When a firm incurs diminishing returns, marginal costs increase. So long as marginal cost is less than average total cost and average variable cost, they will decrease. However, when marginal costs rise above average total and average variable costs, the average costs must necessarily increase. In contrast, when calculating average fixed cost, total fixed cost is being spread over an increasingly larger amount of output. As this happens, the average cost per unit decreases.
You might also like to view...
Refer to the payoff matrix below. If Best Lights and Bright Lights both know that they will play the game a finite number of times, but neither firm knows when the last period will be, there ________ an opportunity to earn higher profit because the managers ________ worry about punishment for cheating.
A) is; will not
B) is; will
C) is not; will
D) is not; will not
In long-run equilibrium for a perfectly competitive firm, price equals which of the following?
a. Economies of real cost. b. Maximum total revenue. c. Diseconomies of scale cost. d. Minimum point on the long-run average cost curve.
An inward shift of the demand curve for a product causes outward shifts in the demand curves for all the factors used to produce the product
a. True b. False Indicate whether the statement is true or false
A bond is
A) a claim on the assets of the corporation that gives the purchaser an ownership right in the corporation. B) the share of profits distributed to bondholders. C) a promise to pay for the use of someone else's money. D) a promise of ownership of the government. E) c and d