Question

A firm's average variable cost cannot be greater than its average total cost.

Select one:

a. False

b. True

Answer 1

Answer -

The given statement is true.

Explanation -

In total cost it includes both fixed and variable costs.so average total cost includes the average of both fixed and variable cost.

In case of variable cost it includes those costs which will change ( I.e.increase or decrease) according to the quantity of output.It is only average of those varying costs of output which responds to change in output quantity.so proportion of such cost is low so it is true that firm's avarage variable cost can't be grater than average total cost.