Question

All else equal, if the prices of a firms variable inputs were to fall: MC only...

All else equal, if the prices of a firms variable inputs were to fall:

MC only would fall
MC, AVC, ATC, and AFC all would fall
MC, AVC, and ATC (only) would fall
MC and AVC only would fall

The basic characteristic of the short run is that:

firms do not have sufficient time to change the size of its capital stock
firms do not have sufficient time to reduce output to zero
firms do not have sufficient time to change the quantity of resources it employs
firms do not have sufficient time to change their output level

Homework Answers

Answer #1

1) All else equal, if the price of a firm variable input were to fall the Marginal cost will fall because it is the cost of one extra unit employed in the production. The average variable cost will fall because it is the average cost of the variable inputs lower the cost lower the average will be. and ATC will fall but not the Fixed cost. Fixed cost will remain the same but the total cost will fall as the average variable cost is falling. The correct answer is "C".

2) The basic characteristics of the short run are that the firms do not have the sufficient time to change the size of its capital. Thye can easily change the output and the variable inputs like labor. The correct answer is "A".

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