The Short-Run Average Total Cost (ATC) Curve of a Firm

question 212

Multiple Choice

The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because

• A) larger firms always have lower per-unit costs than smaller firms.
• B) at low levels of output, AFC will be high, while at high levels of output, MC will be high as the result of diminishing returns.
• C) diminishing returns will be present when output is small, and high AFC will push per-unit cost to high levels when output is large.
• D) diseconomies of scale will be present at both small and large output rates.

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Definitions:

Ending Inventory

The total value of all inventory, including raw materials, work-in-progress, and finished goods, at the conclusion of an accounting period.

Variable Costing

An accounting method that only assigns variable costs to inventory, treating fixed costs as period costs.

Variable Costing

A costing method where only variable production costs are included in product costs, with fixed overhead excluded from inventory valuation.

Unit Product Cost

The total cost to produce a single unit of product, including direct materials, direct labor, and manufacturing overhead.