Which of the Following Statements About Cost Functions Is True

question 6

Multiple Choice

Which of the following statements about cost functions is true?

• A) Variable costs will always increase in direct proportion to the quantity of output produced.
• B) The less capital equipment employed in the production process relative to labor and other inputs,the longer will be the period of time required to increase significantly the scale of operation.
• C) The shape of the firm's long-run cost function is important in decisions to expand the scale of operations.
• D) none of the above

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Definitions:

Short Run

A period in which at least one input in the production process is fixed, limiting the ability to change production levels significantly.

Total Cost

The sum of fixed and variable costs incurred by a business in producing a certain level of output.

Short-Run Average Total Cost

Short-run average total cost is the total cost of production (fixed and variable costs) divided by the total output produced, calculated when at least one factor of production is fixed.

Economies

The large set of interrelated production and consumption activities that aid in determining how scarce resources are allocated.