Question

1.Describe the way in which short-run AFC, AVC, ATC, and MC vary as the output of the firm increases?

2.What are the connections between MP and MC and AP and AVC? How will MC behave as MP increase or decrease? How will AVC change as AP rises or falls?

3.What are the precise relationships between MC and minimum AVC, and between MC and minimum ATC?

Answer 1

1)

2) As MP rises, MC falls and when MC rises MP falls. They have an inverse relationship with each other.

When AP rises, AVC falls and vice versa. When AP touches its highest point, AVC starts rising from that point.

3) When ATC falls, it is above MC and when it rises it is below MC. MC cuts ATC at its minimum point. After its cutting ATC starts rising.

When MC < AVC, AVC falls

When MC = AVC, AVC is constant and at its minimum point

When MC > AVC, AVC rises