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Identify the truthfulness of the following statements: I
Identify the truthfulness of the following statements:
I. Marginal cost can be measured as the slope of the total cost curve.
II. Average total cost can be measured as the slope of the ray from the origin to the total cost curve.
a. Both I and II are true,
b. I is false; II is true,
c. I is true; II is false,
d. Both I and II are false.
Expert Solution
The correct answer is a. Both I and II are true.
There is a direct relationship between the marginal cost and the total cost. The marginal cost is an indicator to measure the change in the total cost by adding one unit of output. If the total cost curve is upward sloping (positive slope) the marginal cost will also be positive. Therefore, the marginal cost can be calculated as the slope of the total cost.
The average total cost is the cost of the final production cost divided by the total output. The average total cost can be calculated if we have a total cost curve because of its direct relationship with the total cost. It can be measured by the tangent of the angle that is created by the ray from the origin to a spot located in the total cost curve.
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