Liz produces lemonade in a perfectly competitive market. Her only fixed cost is the rent she pays for her factory. Which of the following statements are false: Liz's average fixed costs are constant. If the quantity produced increases, Liz's average fixed cost will increase. An increase in marginal cost can only be caused by changes in variable cost. The average total cost curve will intersect the minimum of the average variable cost curve.
Question
Liz produces lemonade in a perfectly competitive market. Her only fixed cost is the rent she pays for her factory. Which of the following statements are false:
Liz's average fixed costs are constant.
If the quantity produced increases, Liz's average fixed cost will increase.
An increase in marginal cost can only be caused by changes in variable cost.
The average total cost curve will intersect the minimum of the average variable cost curve.
Solution
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"Liz's average fixed costs are constant." This statement is false. Average fixed costs decrease as output increases because fixed costs are spread over a larger number of units.
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"If the quantity produced increases, Liz's average fixed cost will increase." This statement is false. As mentioned above, average fixed costs decrease as output increases.
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"An increase in marginal cost can only be caused by changes in variable cost." This statement is true. Marginal cost is the cost of producing one more unit of a good, and it is affected by variable costs, not fixed costs.
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"The average total cost curve will intersect the minimum of the average variable cost curve." This statement is true. The average total cost curve intersects the average variable cost curve at its minimum point. This is because at this point, adding fixed costs to average variable costs (to get average total costs) doesn't change the average variable cost.
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