3 Questions
What happens to average variable costs as output declines?
They increase
How are average variable costs affected by changes in marginal product?
They increase when marginal product declines
In what scenario do average variable costs decrease?
When marginal product rises
Study Notes
Average Variable Costs and Output
- As output declines, average variable costs (AVC) increase, because fixed costs are spread over fewer units of output.
- When output increases, AVC decreases, as fixed costs are spread over more units of output.
Relationship Between Average Variable Costs and Marginal Product
- When marginal product increases, average variable costs decrease, because more output is being produced with the same variable inputs.
- When marginal product decreases, average variable costs increase, because less output is being produced with the same variable inputs.
Scenario for Decreasing Average Variable Costs
- Average variable costs decrease when there are improvements in production technology or management practices, allowing for more output to be produced with the same variable inputs.
Test your understanding of average variable costs with this multiple-choice quiz. Explore how average variable costs are impacted by changes in output and marginal product, and see if you can identify the correct relationships.
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