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Two part question: What happens to marginal cost if a business’s average total cost is decreasing? A
Two part question:
What happens to marginal cost if a business’s average total cost is decreasing?
A. Marginal cost must be lower than average total cost.
B. Marginal cost must be higher than average total cost.
C. Marginal cost must be lower than total cost.
and
how do economists distinguish between the long run and the short run?
A. There are diminishing returns in the short run, but increasing returns in the long run.
B. In the short run, at least one resource is fixed; in the long run, all resources are variable.
C. Resources have higher costs in the short run than in the long run.
Expert Solution
1. If a business’s average total cost is decreasing, then
A. Marginal cost must be lower than average total cost.
Average total cost decreases with additional production at relatively small quantities of output and at that time marginal cost lies below the average total cost. Marginal cost decreases with production of relatively small units of output.
2. Economists distinguish between the long run and the short run as:
B. In the short run, at least one resource is fixed; in the long run, all resources are variable.
The short run concept states that, at least one input is fixed within a particular period in future, while others are variable. Whereas, in the long run, all resources are variable. In the long run firms change levels of production as per the expected profits or losses and all the resources vary to cover the minimum level of long-run average cost.
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