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The Relationship Between Average Cost and Marginal Cost quiz

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  • What happens to average cost when marginal cost is greater than average cost?
    Average cost increases when marginal cost is greater than average cost.
  • What happens to average cost when marginal cost is less than average cost?
    Average cost decreases when marginal cost is less than average cost.
  • How does average fixed cost behave as output increases?
    Average fixed cost continuously decreases as output increases because fixed costs are spread over more units.
  • What is the shape of the average variable cost curve?
    The average variable cost curve is U-shaped, falling at first and then rising as output increases.
  • What is the shape of the average total cost curve?
    The average total cost curve is also U-shaped, falling then rising with increased output.
  • How is average cost calculated?
    Average cost is calculated by dividing total cost by the quantity produced.
  • What is the relationship between marginal cost and average cost similar to, as described in the lesson?
    It parallels concepts like diminishing marginal productivity and aggregate supply in economics.
  • Does marginal cost affect average fixed cost?
    No, marginal cost does not affect average fixed cost; AFC is driven down by increasing quantity.
  • How can average total cost be calculated using average fixed cost and average variable cost?
    Average total cost equals average fixed cost plus average variable cost.
  • What happens to average fixed cost if fixed costs remain constant but output increases?
    Average fixed cost decreases because the same fixed cost is divided by a larger quantity.
  • What drives the direction of change in average cost?
    Whether marginal cost is higher or lower than average cost determines if average cost rises or falls.
  • What happens to average variable cost when marginal cost is less than average variable cost?
    Average variable cost decreases when marginal cost is less than average variable cost.
  • What happens to average variable cost when marginal cost is greater than average variable cost?
    Average variable cost increases when marginal cost is greater than average variable cost.
  • Which cost curve is the 'odd one out' in terms of shape, and why?
    Average fixed cost is the odd one out because it continuously decreases, unlike the U-shaped curves of AVC, ATC, and MC.
  • Why is understanding the relationship between marginal and average costs important?
    It is essential for analyzing production efficiency and cost management in economics.