Which of the following must be falling when the short run marginal cost is less than it, and rising when the short run marginal cost is greater than it? Choose all answers that are correct.Group of answer choicesVariable costFixed costAverage variable costShort run average total cost
Question
Which of the following must be falling when the short run marginal cost is less than it, and rising when the short run marginal cost is greater than it? Choose all answers that are correct.Group of answer choicesVariable costFixed costAverage variable costShort run average total cost
Solution
The correct answers are:
- Average variable cost
- Short run average total cost
Here's why:
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Average Variable Cost (AVC): When the Short Run Marginal Cost (SRMC) is less than the AVC, it means that the cost of producing an additional unit is less than the average cost of producing the previous units. This will cause the AVC to fall. Conversely, when the SRMC is greater than the AVC, it means that the cost of producing an additional unit is more than the average cost of producing the previous units. This will cause the AVC to rise.
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Short Run Average Total Cost (SRATC): The SRATC includes both variable and fixed costs. When the SRMC is less than the SRATC, it means that the cost of producing an additional unit is less than the average total cost of producing the previous units. This will cause the SRAT
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