Micro

Production & Costs

Medium

Which of the following is/are true about the short run costs?

(A) Marginal cost is the slope of total variable cost.

(B) Average fixed cost curve is a downward sloping rectangular hyperbola.

(C) Average variable cost curve is a U shaped curve.

(D) Average variable cost curve and average cost curve are parallel to each other.

Choose the correct answer from the options given below:

(A), (B) and (D) only

(B), (C) and (D) only

(A), (B), (C) and (D)

(A), (B) and (C) only

✅ Correct Option: 4

(A) Marginal cost is the slope of total variable cost -> TRUE. Since MC = dTC/dQ and TC = TFC + TVC, where TFC is constant, MC = dTVC/dQ, making it the slope of TVC.

(B) Average fixed cost curve is a downward sloping rectangular hyperbola -> TRUE. AFC = TFC/Q. As output increases, AFC continuously decreases following the rectangular hyperbola form (xy = constant).

(C) Average variable cost curve is a U shaped curve -> TRUE. Due to the law of variable proportions, AVC initially falls, reaches a minimum, then rises, creating a U-shape.

(D) Average variable cost curve and average cost curve are parallel to each other -> FALSE. Since AC = AFC + AVC, the vertical distance between AC and AVC equals AFC, which continuously decreases. Therefore, these curves converge rather than remain parallel.

Hence, Option 4: (A), (B) and (C) only -> Statements A, B, and C correctly describe short run cost behavior. Statement D is incorrect because AC and AVC curves are not parallel; they converge as output increases since the gap between them (AFC) continuously decreases. The AC curve lies above AVC by a diminishing vertical distance -> correct

2025: 26 May Shift 2

A firm is operating in a market where it can sell more only by lowering the price of the good. Arrange the changes in total revenue of this firm in a sequential order.

(A) Total revenue falls.

(B) Total revenue starts from origin.

(D) Total revenue reaches its maximum.

Choose the correct answer from the options given below:

2025: 3 June Shift 1

Which one of the following leads to the law of variable proportions?

2025: 28 May Shift 2

When the output is zero in the short run. Which of the following costs are undefined?

2025: 30 May Shift 1

Which of the following cost curve has the shape of a rectangular hyperbola?

2025: 13 May Shift 2

In which of the following conditions, output increases with the same proportion of input?

2026: 19 May Shift 2

In the short run, when a fixed input is combined with increasing variable inputs, the following changes in Average Product (AP) and Marginal Product (MP) are witnessed. Select the correct order of such change starting with the first unit employment of variable input.

A. AP and MP both decrease and AP > MP

B. AP and MP both increase and AP < MP

C. AP intersects MP and after that AP > MP

D. AP = MP, for the first level of output

Choose the correct sequence from the options given below:

Solution

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