Which of the following is true of average cost? Group of answer choices <\/p>\n\n\n\n
a. It is always larger than marginal cost. <\/p>\n\n\n\n
b. It declines for some range of output, hits a minimum, then increases. <\/p>\n\n\n\n
c. It is always smaller than marginal cost. <\/p>\n\n\n\n
d. It is the total cost\/price of the product.<\/p>\n\n\n\n
The correct answer and explanation is:<\/strong><\/mark><\/p>\n\n\n\n Correct Answer: b. It declines for some range of output, hits a minimum, then increases.<\/strong><\/p>\n\n\n\n Average cost (AC)<\/strong>, also known as average total cost (ATC)<\/strong>, is a key concept in microeconomics used to analyze the cost of production. It is defined as: Average Cost (AC)=Total Cost (TC)Quantity of Output (Q)\\text{Average Cost (AC)} = \\frac{\\text{Total Cost (TC)}}{\\text{Quantity of Output (Q)}}<\/p>\n\n\n\n Average cost includes both fixed costs<\/strong> (which do not change with output) and variable costs<\/strong> (which change with output). As a firm begins to produce more units, the average cost behaves in a characteristic U-shape, particularly in the short run.<\/p>\n\n\n\n Initially, average cost declines<\/strong> as output increases. This is due to economies of scale<\/strong> and the spreading of fixed costs over a larger number of units. For example, if a factory\u2019s fixed costs are $1,000 and it produces 10 units, the fixed cost per unit is $100. But if it produces 100 units, the fixed cost per unit drops to $10.<\/p>\n\n\n\n However, after a certain point, producing additional units leads to increasing marginal costs<\/strong>, due to diminishing returns to variable inputs (like labor or materials). When marginal cost (MC) starts rising and eventually becomes higher than average cost, it pulls the average cost upward<\/strong>, causing the AC curve to rise.<\/p>\n\n\n\n So, the average cost curve<\/strong> typically:<\/p>\n\n\n\n This behavior is what makes option (b)<\/strong> the correct answer.<\/p>\n\n\n\n The other options are incorrect because:<\/p>\n\n\n\n Understanding the behavior of average cost is crucial for firms to determine optimal production levels and pricing strategies.<\/p>\n","protected":false},"excerpt":{"rendered":" Which of the following is true of average cost? Group of answer choices a. It is always larger than marginal cost. b. It declines for some range of output, hits a minimum, then increases. c. It is always smaller than marginal cost. d. It is the total cost\/price of the product. The correct answer and […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-28404","post","type-post","status-publish","format-standard","hentry","category-quiz-questions"],"_links":{"self":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/28404","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/comments?post=28404"}],"version-history":[{"count":1,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/28404\/revisions"}],"predecessor-version":[{"id":28413,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/posts\/28404\/revisions\/28413"}],"wp:attachment":[{"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/media?parent=28404"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/categories?post=28404"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/gaviki.com\/blog\/wp-json\/wp\/v2\/tags?post=28404"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Explanation (300 words):<\/h3>\n\n\n\n
\n
\n