Suppose a Firm with the Usual U-Shaped Cost Curves Is

question 6

Multiple Choice

Suppose a firm with the usual U-shaped cost curves is producing a level of output such that its short-run costs are as follows: ATC = $0.37 per unit
AVC = $0.32 per unit
AFC = $0.05 per unit
MC = $0.43 per unit
Given these short-run costs,as the firm increases its output,which of the following statements is true?

• A)Marginal product of the variable factor must be decreasing.
• B)Marginal product of the variable factor must be increasing.
• C)The point of diminishing average product of the variable factor has not yet been reached.
• D)Average product of the variable factor must be increasing.
• E)Marginal product of the variable factor is at its minimum point.

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Definitions:

Marginal Rate Of Technical Substitution

The rate at which one input can be substituted for another input while keeping the level of output constant.

Marginal Rate Of Substitution

The rate at which a consumer can give up some amount of one good in exchange for another good while maintaining the same level of utility.

North American Free Trade Agreement

A trade agreement among the United States, Canada, and Mexico to reduce trade barriers and promote economic exchange.

Efficient Equilibrium

A state of balance in a market where resources are allocated in the most efficient way possible, with no room for welfare improvement without making someone else worse off.