Which of the following statements about short-run costs is true? aAverage fixed cost plus variable cost equals total cost. bAverage total cost plus average fixed cost equals average variable cost. cTotal fixed cost increases in constant increments as output produced increases. dTotal fixed cost plus total variable cost equals total cost.
Question
Which of the following statements about short-run costs is true? aAverage fixed cost plus variable cost equals total cost. bAverage total cost plus average fixed cost equals average variable cost. cTotal fixed cost increases in constant increments as output produced increases. dTotal fixed cost plus total variable cost equals total cost.
Solution
The correct statement about short-run costs is: d) Total fixed cost plus total variable cost equals total cost.
Here's why:
a) Average fixed cost plus variable cost does not equal total cost. Average fixed cost is the total fixed cost divided by the quantity of output, and variable cost changes with the level of output. These two added together do not give the total cost.
b) Average total cost plus average fixed cost does not equal average variable cost. Average total cost is the sum of all costs (fixed and variable) divided by the quantity of output. Adding average fixed cost to this would not give the average variable cost.
c) Total fixed cost does not increase in constant increments as output produced increases. By definition, fixed costs do not change with the level of output.
d) Total fixed cost plus total variable cost equals total cost. This is the definition of total cost - it includes all fixed and variable costs.
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