New SIDBI Grade A New Batch Starts on Nov 18

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    Question

    Which of the following statements about graphs of short-run cost curves is false?

    A The AFC at each output equals the gap between the SAC and AVC curves at that output. Correct Answer Incorrect Answer
    B The SMC curve lies above the MVC curve. Correct Answer Incorrect Answer
    C The MVC curve intersects the lowest point on the AVC curve. Correct Answer Incorrect Answer
    D The SMC curve intersects the lowest point on the SAC curve. Correct Answer Incorrect Answer

    Solution

    Statement b is false, because the SMC and MVC curves actually coincide. MVC shows the change in a firm's total variable cost if its output changes by one unit, while SMC shows the change in its short-run total cost if its output changes by one unit. Now, in the short-run, if a firm changes its output by one unit, it can change the quantity of the variable inputs it uses but not the quantity of the fixed inputs, so the change in its total cost equals the change in the cost of its variable inputs.

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