Which of the following relationships implies that a firm's short-run cost function is linear?
A)MC = AC
B)MC = AVC
C)AC = AFC + AVC
D)MC AC

Question

Which of the following relationships implies that a firm's short-run cost function is linear?
A)MC = AC
B)MC = AVC
C)AC = AFC + AVC
D)MC > AC

Quizplus · Accepted Answer

In the short run, fixed costs are fixed and do not change with the level of output, therefore the short-run cost function can be represented by the variable costs, which include the average variable cost (AVC) and the marginal cost (MC). If the short-run cost function is linear, that means that the variable costs increase at a constant rate as output increases. This is represented by the MC = AVC relationship, where MC is the slope of the AVC curve. The other options do not necessarily imply a linear relationship between costs and output.

Which of the Following Relationships Implies That a Firm's Short-Run