In a Short-Run Production Process, the Marginal Cost Is Rising

question 8

Multiple Choice

In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus,

• A) average fixed cost is constant.
• B) marginal cost is above average variable cost.
• C) marginal cost is below average fixed cost.
• D) marginal cost is below average variable cost.

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Definitions:

FIFO

An inventory valuation method where goods first received are the first ones sold, used in accounting to determine cost of goods sold.

LIFO

LIFO, standing for Last-In, First-Out, is an accounting method used for inventory valuation where the most recently produced or acquired items are the first to be expensed.

Purchase Order

A document issued by a buyer to a seller, indicating types, quantities, and agreed prices for products or services.

Inventory Control

The management practice of overseeing and regulating the ordering, storing, and use of components that a company uses in the production of the items it sells.