Average Variable Costs Quiz
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Questions and Answers

What happens to average variable costs as output declines?

  • They fluctuate randomly
  • They decrease
  • They increase (correct)
  • They remain constant
  • How are average variable costs affected by changes in marginal product?

  • They decrease when marginal product rises
  • They increase when marginal product rises
  • They increase when marginal product declines (correct)
  • They decrease when marginal product declines
  • In what scenario do average variable costs decrease?

  • When marginal product declines
  • When output rises
  • When marginal product rises (correct)
  • When output declines
  • 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.

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    Description

    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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