Question

Consider the following statements: A. Average Fixed Cost always decline with increase in output, B. Marginal Cost intersects AVC and ATC at their minimum point, C. Learning Curve implies cost rises with accumulated output, D. In the long run, all costs are variable, E. Longrun Average Cost is envelope of Shortrun Average Cost curves.

• A. A, B, C, D Only
• B. A, B, D, E Only
• C. A, B, C, E Only
• D. A, B, C Only

Hint:

Learning curve usually means cost decreases with experience. LAC is the envelope of SAC curves.

Answer 1

The Correct Option is B

Concept: Cost curves show the relationship between cost and output in short run and long run.

Step 1: Check statement A.
Average fixed cost falls as output increases because fixed cost is spread over more units. \[ AFC=\frac{TFC}{Q} \] \[ A = \text{Correct} \]

Step 2: Check statement B.
Marginal cost cuts AVC and ATC at their minimum points. \[ B = \text{Correct} \]

Step 3: Check statement C.
Learning curve usually implies cost falls with accumulated output due to experience, not rises. \[ C = \text{Incorrect} \]

Step 4: Check statement D.
In the long run, all factors and costs are variable. \[ D = \text{Correct} \]

Step 5: Check statement E.
Long-run average cost curve is the envelope of short-run average cost curves. \[ E = \text{Correct} \] Thus, correct statements are: \[ A, B, D, E \]