Question

8. A firm has standard shaped cost curves where FC = 90. MC = 20 and AVC = 15 at q= 6. Which of the following must be true? I. ATC is decreasing at q = 6 II. ATC is decreasing at q = 10 III. MC is increasing at q = 6 a) None of them must be true b) Only III must be true c) Only I and Il must be true d) Only I and III must be true e) Only II and III must be true

Answer 1

Answer

the AVC<MC so the MC AVC and MC are increasing as the MC cuts AVC at minimum.

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AFC=FC/q

=90/6

=15

ATC=AFC+AVC=15+15=30

The ATC is decreasing up to the MC<ATC

ATC=30 and MC=20 then the ATC is decreasing at q=6 but it may not be true for q=10 as the MC is increasing

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Option d

Only I and III must be true.