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As the level of production increases in the short-run, the Average Variable Cost (AVC) _________________________ and the Average Fixed Cost (AFC) curve _________________________
As the level of production increases in the short-run, the Average Variable Cost (AVC) _________________________ and the Average Fixed Cost (AFC) curve _________________________.
A. Increases continuously; first decreases and then increases.
B. First decreases and then increases; decreases continuously.
C. First decreases and then increases; increases continuously.
D. Decreases continuously; decreases continuously.
E. Increases continuously; decreases continuously.
Expert Solution
As the level of production increases in the short-run, the Average Variable Cost (AVC) _________________________ and the Average Fixed Cost (AFC) curve _________________________. (B) First decreases and then increases; decreases continuously. Initially the average variable cost decreases because of increasing marginal product of labor, but then increases as the marginal cost (the additional cost of an additional unit) increases. Because the fixed cost is unchanged for all output levels, it is always decreasing as output increases.
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