Average Cost and Marginal Cost Quiz

Questions and Answers

The average expense per unit of output

By the change in total cost divided by the change in quantity

It typically pulls the average cost down

It helps businesses determine optimal production levels based on minimizing costs or maximizing efficiency Signup and view all the answers

The lowest average cost achievable for producing different quantities of output when all inputs are variable Signup and view all the answers

Change in total cost divided by change in quantity Signup and view all the answers

When marginal cost is equal to average cost Signup and view all the answers

It pulls the average cost down Signup and view all the answers

The lowest average cost achievable for producing different quantities of output Signup and view all the answers

It helps businesses determine optimal production levels based on minimizing costs or maximizing efficiency Signup and view all the answers

Presence of a large number of buyers and sellers Signup and view all the answers

Barriers to entry Signup and view all the answers

No government intervention Signup and view all the answers

Price maker behavior Signup and view all the answers

Study Notes

Average Cost (AC) measures the total cost per unit of production.
Marginal Cost (MC) is calculated by dividing the change in total cost by the change in quantity produced.
Formula to calculate Marginal Cost (MC): MC = ΔTC / ΔQ, where ΔTC is the change in total cost and ΔQ is the change in quantity produced.

When marginal cost is less than the average cost, the average cost decreases.
Conversely, when the marginal cost is greater than the average cost, the average cost increases.
The relationship between AC and MC influences cost structures, as it helps firms determine the optimal level of production.

The LRAC curve represents the minimum cost per unit of production in the long run, when all inputs are variable.
The LRAC curve is typically U-shaped, indicating that there are economies of scale at low levels of production and diseconomies of scale at high levels.

In perfect competition, there are many firms producing a homogeneous product, and no single firm has market power.
A key characteristic of perfect competition is the absence of barriers to entry and exit.
A monopoly is differentiated from perfect competition by the presence of a single firm producing a product, giving it market power.
In monopolistic competition, there are many firms producing differentiated products, and firms have some degree of market power.
Oligopoly is characterized by a small number of firms producing either homogeneous or differentiated products, with each firm having significant market power.