Multiple Choice
Which of the following statements best explains why the average variable cost (AVC) curve is typically U-shaped in the short run?
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10. The Costs of Production
Cost-Minimizing Combination of Labor and Capital
Multiple Choice
Refer to Figure 13-2. Which of the following curves is most likely to represent the average fixed cost (AFC) curve?
A
A horizontal line above the origin
B
A curve that rises continuously as output increases
C
A curve that first decreases, then increases as output rises
D
A curve that declines continuously as output increases
Verified step by step guidance1
Recall the definition of Average Fixed Cost (AFC), which is the fixed cost divided by the quantity of output produced: \(\text{AFC} = \frac{\text{Fixed Cost}}{Q}\).
Understand that fixed costs do not change with output, so as output \(Q\) increases, the fixed cost remains constant while the denominator increases.
Since the fixed cost is constant and the output increases, the AFC must decrease as output rises, because you are spreading the same fixed cost over more units.
Recognize that this behavior means the AFC curve is downward sloping and approaches zero but never touches the horizontal axis (output axis).
Therefore, among the options, the curve that declines continuously as output increases best represents the AFC curve.
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