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In the short run: The difference between Average Total Cost and Average Variable cost at every...

  1. In the short run:
  1. The difference between Average Total Cost and Average Variable cost at every level of output is marginal cost
  2. The difference between Marginal cost and Average Total Cost is Average Fixed cost.
  3. The difference between Average Total Cost and Average Variable cost is Average fixed cost
  4. The difference between Average Total Cost and Marginal Cost is Average Variable Cost.
  1. In a diagram of an isocost line where capital is on the vertical axis and labor is on the horizontal axis, and r is the cost of capital and w is the cost of labor the slope of the isocost line is:
    1. w/r                b. r/w             c. r-w/r          d. w-r/w\
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Answer #1

Answer to the question no. 1:

Option c: The difference between Average Total Cost and Average Variable cost is Average fixed cost.

Explanation: We know that in the short run TC=TFC+TVC. So, ATC=AFC+AVC. There always exist a gap between the ATC and the AVC because AFC can never be zero and the gap between the ATC and the AVC shows the AFC. Since, the AFC can not be zero, the gap between the ATC and the AVC always remain but shrink with the increasing output level.

Answer to the question no. 2:

Option a: w/r.

Explanation: We can represent it as the ratio of the PL and PK, where the PL is the price of labour (wage) and the PK is the price of capital (rent). In the producers equilibrium, the MPL/MPK=PL/PK/=w/r.

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