Question

A. INDICATE WHETHER THE FOLLOWING STATEMENTS ARE TRUE OR FALSE 1.THE SHAPE OF THE TOTAL COST CURVE IS UNRELATED TO THE SHAPE OF THE PRODUCTION FUNCTION 2.DIMINISHING MARGINAL PRODUCT EXISTS WHEN THE PRODUCTION FUNCTION BECOMES FLATTER AS INPUTS INCREASING 3.FIXED COSTS ARE INCURRED EVEN WHEN A FIRM DOES NOT PRODUCE ANYTHING 4.THE COST OF PRODUCING AN ADDITIONAL UNIT OF A GOOD IS NOT THE SAME AS AVERAGE COST OF THE GOOD

Answer 1

1. The production function actually determines the shape of the firm's cost curves. As the production function is a function of inputs used in the production process. Thus, the statement is false.

2. As output continuous to increase, the total cost curves become steeper and as a result, diminishing marginal product exists. Thus the statement is false.

3. Fixed costs are costs of short run that don't depend upon the amount of output produced. Therefore, the statement is true.

4. The average cost is the cost of each unit of output produced averaged over total cost. However, marginal cost is the cost of additional unit of output produced and both are not same. Thus, the statement is true.