Average Cost and Marginal Cost Quiz

What does the Average Cost (AC) measure?

How is Marginal Cost (MC) calculated?

What happens when the marginal cost is less than the average cost?

How does the relationship between AC and MC influence cost structures?

What does the Long Run Average Cost (LRAC) curve represent?

What is the formula to calculate Marginal Cost (MC)?

When does the average cost (AC) remain constant?

What happens to the average cost when the marginal cost is less than the average cost?

What does the Long Run Average Cost (LRAC) curve represent?

How does the relationship between AC and MC influence cost structures?

What is a key characteristic of perfect competition?

What differentiates a monopoly from perfect competition?

What is a distinguishing feature of monopolistic competition?

What sets oligopoly apart from other market structures?

Cost Concepts

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.

Relationship between AC and MC

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.

Long Run Average Cost (LRAC)

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.

Market Structures

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.

Test your knowledge of cost analysis with this quiz on Average Cost and Marginal Cost. Explore the concepts of calculating average expense per unit and the additional cost of producing one more unit of a good or service.