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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 higher than average cost?
    When marginal cost is higher than average cost, it drives the average cost up.
  • How does marginal cost affect average cost if it is lower than the average?
    If marginal cost is lower than average cost, it pulls the average cost down.
  • What is the analogy used in the lesson to explain the relationship between marginal and average cost?
    The analogy used is GPA: semester GPA as marginal and cumulative GPA as average.
  • How do you calculate average total cost (ATC)?
    Average total cost is calculated by dividing total cost by quantity or by adding average fixed cost and average variable cost.
  • What happens to average fixed cost (AFC) as output increases?
    Average fixed cost continuously decreases as output increases because the fixed cost is spread over more units.
  • How do variable costs behave as output increases?
    Variable costs increase as output increases, affecting the calculation of average variable cost.
  • What is the formula for average fixed cost?
    Average fixed cost is calculated as fixed cost divided by quantity.
  • What is the formula for average variable cost?
    Average variable cost is calculated as variable cost divided by quantity.
  • What shape do the average variable cost and average total cost curves typically have?
    Both average variable cost and average total cost curves typically have a U-shape: they fall and then rise.
  • Does marginal cost affect average fixed cost?
    No, marginal cost does not affect average fixed cost; AFC is only affected by changes in quantity.
  • What determines whether average cost rises or falls when producing an additional unit?
    Whether average cost rises or falls depends on if the marginal cost of the next unit is above or below the current average cost.
  • How can you confirm the calculation of average total cost using average fixed and variable costs?
    You can add average fixed cost and average variable cost together to get average total cost.
  • What happens to average variable cost if marginal cost is less than average variable cost?
    If marginal cost is less than average variable cost, it pulls the average variable cost down.
  • What happens to average total cost if marginal cost is greater than average total cost?
    If marginal cost is greater than average total cost, it pushes the average total cost up.
  • Which cost curve continuously decreases as output increases?
    The average fixed cost curve continuously decreases as output increases.