Question

- Which of the following statements is false?

a) The difference between average total cost and average fixed cost is average variable cost.

b) The marginal cost curve intersects the average variable cost curve and the average total cost curve at their minimum points.

c) Firms often refer to the process of lowering average fixed cost as "spreading the overhead."

d) When marginal cost equals average total cost, average total cost is at its highest value.

- Average total cost is

a) the change in fixed plus variable cost divided by the quantity of output produced.

b) variable cost divided by the quantity of output produced.

c) total explicit costs divided by the quantity of output produced.

d) total cost divided by the quantity of output produced.

-

Company	Aardvark	Bandicoot	Capybara	Dugong	Echidna
Output	5,000	12,000	8,500	15,000	3,500

Table 11-8 represents the monthly output of five companies in the electric scooter manufacturing industry.
Minimum efficient scale in this industry is a monthly output of 27,000 electric scooters, and the industry
has a typical U-shaped long-run average cost curve with no constant returns to scale.

Which of the following potential mergers would still result in the new company experiencing economies of scale?

a) Dugong merges with Echidna and Capybara.

b) Bandicoot merges with Capybara, Aardvark, and Echidna.

c) Dugong merges with Aardvark and Echidna.

d) Bandicoot merges with Dugong.

- Consider a manufacturing operation that uses specialized machinery and labor to produce its output. In this case, the input that is not fixed in the short run is labor.

a) True

b) False

Answer 1

d) When marginal cost equals average total cost, average total cost is at its highest value.

This statement is false

When MC= AC, AC curve is at its ,minimum point.

AC-AFC= AVC. Therefore first option is true.

MC curve intersects AC and AVC curves at its minimum points. Therefore second option is also true.

Firms often refer to the process of lowering average fixed cost as spreading the overhead. This statement is also true. In other words spreading the overhead means reducing the costs that are not directly attributable to production process.

Average cost is total cost divided by quantity of output produced.