-Figure 53 Shows a Firm's Marginal Cost, Average Total Cost, and and Average

question 108

Multiple Choice

-Figure 5.3 shows a firm's marginal cost, average total cost, and average variable cost curves. The average total cost curve is downward-sloping as output increases from Q = 50 to Q = 100 because

• A) increasing average variable cost outweighs decreasing average fixed cost.
• B) decreasing average fixed cost outweighs increasing average variable cost.
• C) diminishing returns are not severe enough to outweigh decreasing average fixed cost.
• D) marginal cost is increasing.

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Definitions:

Economic Profit

The difference between total revenue and total economic costs, including both explicit and implicit costs, reflecting the true profitability of a firm.

Elastic

A characteristic of supply or demand that indicates a high responsiveness to changes in price.

Monopolistic Competitor

A firm operating in a market structure where many companies sell products that are similar but not identical, allowing for some degree of market power and price setting.

Excess Capacity

A situation in which a company can produce more goods or services than currently demanded, due to underused resources.