Question

Q-36) True or False Statement

1. As long as marginal physical product rises, marginal cost will fall, and when marginal physical product starts to fall (after reaching the point of diminishing marginal product), marginal cost will begin to rise

2. When marginal costs are less than average variable costs (AVC), the latter (AVC)must fall

3. When marginal costs are greater than average variable costs(AVC), the latter (AVC) must rise

4. Whenever marginal cost is less than average total cost, average total cost must be decreasing (negatively sloped).

5. Whenever marginal cost is more than average total cost, average total cost must be increasing (positively sloped).

Answer 1

First statement is correct. There are increasing costs when there are diminishing returns and diminishing cost when there are increasing returns. This indicates that while the marginal cost is u shaped the marginal product is inverse u shaped

Second statement is correct. when marginal cost is less than average variable cost, average variable cost is falling and reaches its minimum value

Third statement is correct. when marginal cost is greater than average variable cost average variable cost is increasing after reaching its minimum value

4th and 5th statement are also correct.