As output of a firm increases, the difference between the firms average total cost

Q: What happens to average cost when output changes?

What happens to a firms average costs when it increases its level of output in the long run? Many industries experience economies of scale. Economies of scale refers to the situation where, as the quantity of output goes up, the cost per unit goes down.

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Question 1
Question 2
Question 3
Question 4
Question 5
Question 6
Question 7
Question 8
Question 9
Question 10
What happens to average total cost as output rises?
What happens to average cost when output changes?
Why does average cost increase as output increases?
Does average variable cost increases as output increases?

Question 1

Which of the following statements about short-run and long-run costs is false?

a) A firm might quote its short-run costs as the costs of producing different output levels over a period of a month.

b) A firm might quote its long-run costs as the costs of producing different output levels over a period of an hour.

c) A firm might quote both its short-run costs and its long-run costs as the costs of producing different output levels over a period of a week.

d) Short-run costs are always lower than long-run costs.

Question 2

Which of the following statements about a profit-maximizing firm is false?

a) It might set its daily output at a higher level in the short run than in the long run.

b) It might set its daily output at a lower level in the short run than in the long run.

c) If it had a daily output of zero in the short run, it would be sure to have a total cost of zero.

d) If it had a daily output of zero in the long run, it would be sure to have a total cost of zero.

Question 3

Which of the following statements about a fixed input is true?

a) Its price is fixed.

b) The quantity of it that a firm can use in the long run is fixed.

c) The quantity of it that a firm can use in the short run is fixed.

d) The quantity of output that the firm can produce with it is fixed.

Question 4

In the short-run, which of the following always gets smaller as output increases?

a) Average fixed cost.

b) Average variable cost.

c) Short-run average cost.

d) Short-run marginal cost.

Question 5

Which of the following statements about graphs of short-run cost curves is false?

a) The AFC at each output equals the gap between the SAC and AVC curves at that output.

b) The SMC curve lies above the MVC curve.

c) The MVC curve intersects the lowest point on the AVC curve.

d) The SMC curve intersects the lowest point on the SAC curve.

Question 6

Which of the following is the correct definition of the law of diminishing returns?

a) If extra units of one variable input are added to a fixed amount of all other inputs, then sooner or later the marginal returns will get smaller.

b) If extra units of one variable input are added to a fixed amount of all other inputs, then the marginal returns will always get smaller.

c) If extra units of all variable inputs are added to a fixed amount of all fixed inputs, then the marginal returns will always get smaller.

d) If extra units of all variable inputs are added to a fixed amount of all fixed inputs, then sooner or later the marginal returns will get smaller.

Question 7

Which of the following statements about economies of scale is false?

a) A firm may have economies of scale, even if it does not have increasing returns to scale.

b) A firm may initially have economies of scale and later have diseconomies of scale.

c) An industry where economies of scale are exhausted at an output that is low relative to the industry output may have many small firms.

d) Throughout the output range where a firm enjoys economies of scale, its long-run marginal cost curve, LMC, will slope downwards.

Question 8

Which of the following statements about a firm's average cost curves is false?

a) Its SAC curve will stay put if the price of an input that is fixed in the short run increases.

b) Its SAC curve will shift upwards it the price of an input that is variable in the short run increases.

c) Its SAC curve will generally lie above its LAC curve.

d) Its LAC curve will shift upwards if new firms enter its industry and there are external diseconomies of scale.

Question 9

An isoquant relates the quantity of inputs a firm uses to the quantity of output it can produce. In drawing an isoquant, which of the following assumptions about the firm is made?

a) It is a profit-maximizing firm.

b) It is a technically efficient firm.

c) It is an economically efficient firm.

d) It has at least one fixed input.

Question 10

Suppose a profit-maximizing firm faces a rise in the wage rate it pays. Which of the following would definitely stay the same?

a) Its choice of production method.

b) The expansion path on which it ends up.

c) Its isocost lines.

d) Its production function.

What happens to average total cost as output rises?

Thus, as the output increases, the average total cost usually decreases if the marginal cost is not increasing where the marginal cost indicates the cost associated with one additional unit of output.

What happens to average cost when output changes?

What happens to a firm's average costs when it increases its level of output in the long run? Many industries experience economies of scale. Economies of scale refers to the situation where, as the quantity of output goes up, the cost per unit goes down.

Why does average cost increase as output increases?

Once the optimum level of output is reached, Average Costs starts rising as more are produced beyond this level. The rise in Average Variable Cost is more than off set by the small fall in Average Fixed Costs and hence the Average Costs rises quickly. This is due to the change of economies into dis-economies.

Does average variable cost increases as output increases?

The variable cost of production is a constant amount per unit produced. As the volume of production and output increases, variable costs will also increase. Conversely, when fewer products are produced, the variable costs associated with production will consequently decrease.