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Graphing Costs quiz

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  • Which cost curve is always decreasing as output increases?
    The average fixed cost (AFC) curve is always decreasing as output increases because fixed costs are spread over more units.
  • How can you identify the marginal cost (MC) curve on a cost graph?
    The MC curve is the steepest curve, especially at higher quantities, and it intersects the ATC and AVC curves at their minimum points.
  • What is the relationship between average total cost (ATC), average fixed cost (AFC), and average variable cost (AVC)?
    ATC equals AFC plus AVC; ATC = AFC + AVC.
  • Which curve is always above the average variable cost (AVC) curve?
    The average total cost (ATC) curve is always above the AVC curve because it includes both fixed and variable costs.
  • What happens to the gap between ATC and AVC as output increases?
    The gap between ATC and AVC gets smaller as output increases because AFC decreases.
  • How can you calculate AFC if only ATC and AVC are given?
    AFC can be calculated by subtracting AVC from ATC: AFC = ATC - AVC.
  • What is the shape of the MC, AVC, and ATC curves?
    The MC, AVC, and ATC curves are typically U-shaped, meaning they fall and then rise as output increases.
  • At what point does the MC curve intersect the ATC and AVC curves?
    The MC curve intersects the ATC and AVC curves at their minimum points.
  • What happens to ATC and AVC when MC is below them?
    When MC is below ATC or AVC, those averages decline.
  • What happens to ATC and AVC when MC is above them?
    When MC is above ATC or AVC, those averages rise.
  • Why does the AFC curve have a different shape from the other cost curves?
    The AFC curve is always decreasing because fixed costs are divided by increasing output, unlike the U-shaped MC, AVC, and ATC curves.
  • Why can AVC never be greater than ATC?
    AVC can never be greater than ATC because ATC includes both variable and fixed costs.
  • What does the space between the ATC and AVC curves represent?
    The space between the ATC and AVC curves represents the average fixed cost (AFC).
  • As output increases, what happens to the proportion of total cost made up by variable costs?
    As output increases, variable costs make up a larger proportion of total cost because AFC becomes very small.
  • How does the MC curve affect the direction of ATC and AVC?
    The MC curve drives the direction of ATC and AVC: if MC is below, they fall; if MC is above, they rise.