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Answer two of the following, carefully justifying your response using graphs as necessary: If Average Variable...

Answer two of the following, carefully justifying your response using graphs as necessary:

If Average Variable Costs are constant, what must be true about Marginal Cost?

If Average Variable Costs are constant, what must be true of Average Total Cost?

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Answer #1

Answer:-

A). Mathematically, average variable cost = total variable cost/total output.

So total variable cost = average variable cost (which is constant)*output. Technically, to remain the AVC constant, the TVC needs to increase at a constant proportion with output so that the whole fraction (TC/Q) remains unchanged.

And total cost = total variable cost + total fixed cost.

Marginal cost = TC/Q.

Because TVC is increasing the level of output, MC would also be increasing.

Thus the MC would be an increasing function of output.

B). Total cost includes total fixed costs plus total variable costs. Total fixed cost is constant, and total variable cost remains constant, the average total cost will also remain constant.

If average variable cost is constant, then the variable cost will remain constant no matter how many units of the product is produced.

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