Which of the following cost relationships hold in the short- run?
A)If ATC exceeds AVC, AVC is falling.
B)If AVC is constant, then ATC is also constant, but at a higher level.
C)For positive FC, AVC approaches ATC as output increases.
D)If SRMC is rising, both AVC and AFC are rising.

Question

Quizplus · Accepted Answer

In the short-run, fixed costs cannot be changed, so as output increases, the fixed costs are spread over a larger quantity of output, causing average fixed costs to decrease. As long as average variable costs are also decreasing with increased output, then average total costs will approach average variable costs as output increases (i.e. AVC approaches ATC).

A, B, and D are incorrect because they do not hold true in all situations in the short-run.

Which of the Following Cost Relationships Hold in the Short-