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In the short run, supposed average total cost is a straight line and marginal cost is...

In the short run, supposed average total cost is a straight line and marginal cost is positive and constant. Then, we know that fixed costs must:

A. be declining with output

B. be positive

C. equal zero

D. We do not have enough information to answer this question

Business   Economics   
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Homework Answers

Answer #1

Option C.

  • In the short run, supposed average total cost is a straight line and marginal cost is positive and constant. Then, we know that fixed costs must equal zero.
  • We know that an average total cost is the sum of marginal cost and fixed cost.
  • When the marginal cost is positive and constant, the fixed cost will eventually be equal to the average total cost. A straight line of average total cost means that the average total cost is also constant. Hence the fixed cost equals zero.
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