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Graphing Costs quiz

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  • Which cost curve is always decreasing as output increases, and why?
    The Average Fixed Cost (AFC) curve is always decreasing because fixed costs are spread over more units as output increases.
  • Why does the Average Total Cost (ATC) curve always lie above the Average Variable Cost (AVC) curve?
    ATC includes both variable and fixed costs, while AVC only includes variable costs, so ATC is always higher.
  • What is the mathematical relationship between ATC, AVC, and AFC?
    ATC equals AVC plus AFC; ATC = AVC + AFC.
  • How can you determine the value of AFC from a cost graph?
    AFC is the vertical distance between the ATC and AVC curves at any given output level.
  • What happens to the gap between ATC and AVC as output increases, and why?
    The gap narrows because AFC per unit decreases as output rises, making most total costs variable at high output.
  • Which cost curves are typically U-shaped, and what does this shape indicate?
    The MC, AVC, and ATC curves are U-shaped, indicating costs fall at first and then rise as output increases.
  • How can you visually identify the Marginal Cost (MC) curve on a cost graph?
    The MC curve is the steepest and eventually rises sharply as output increases.
  • At what points does the MC curve intersect the AVC and ATC curves?
    The MC curve intersects both the AVC and ATC curves at their minimum points.
  • What effect does MC being below ATC or AVC have on those curves?
    If MC is below ATC or AVC, it pulls those averages down, causing them to decrease.
  • What happens to ATC and AVC when MC is above them?
    When MC is above ATC or AVC, it pushes those averages up, causing them to increase.
  • Why does the AFC curve have a different shape compared to the other cost curves?
    The AFC curve is always downward sloping because fixed costs are divided by an increasing number of units.
  • How can you use the difference between ATC and AVC to solve for AFC if the AFC curve is not shown?
    You can subtract AVC from ATC at any output level to find AFC.
  • What does it mean when the distance between ATC and AVC becomes very small at high output levels?
    It means that fixed costs per unit are very low, so most of the total cost is made up of variable costs.
  • What is the significance of the minimum points on the AVC and ATC curves?
    The minimum points indicate the lowest average variable and total costs, and are where the MC curve crosses them.
  • How does the MC curve influence the direction of the ATC and AVC curves?
    The MC curve determines whether ATC and AVC are rising or falling: if MC is below, they fall; if above, they rise.