Q5. Consider the following statements and decide which are true. Record the correct combination from the possibilities listed below the list of statements.
|1.||If the returns to the variable input were constant in the short run then the total variable cost curve would be a straight line going through the origin of the graph|
|2.||In the short run the average variable cost curve would be horizontal if the returns to the variable input were constant|
|3.||In the short run, the MC curve would be above the AVC if the average product of labour was falling.|
|4.||On a graph, the average fixed cost curve would be shown as a horizontal straight line.|
|5.||TC = (AVC+AFC)xQ.|
|6.||In the short run, when increasing returns are present, MC and AVC are both upward sloping because the productivity of the variable input is increasing.|
|7.||As output increases the vertical distance between average variable and average total costs narrows.|
Answer questions 8 –14 on the basis of the following diagram:
|8.||The average product of labour is at its maximum at point F.|
|9.||For Q = 0Q1, total revenue is given by the distance 0A.|
|10.||For Q = 0Q1, total costs equal the area measured by the rectangle 0ABQ1.|
|11.||For Q = 0Q1, total variable costs are equal to the area 0CDQ1.|
|12.||For Q = 0Q1, total fixed cost is measured by the distance BD.|
|13.||The MC curve must always cut through the minimum points of the AVC and AFC curves.|
|14.||In the short run, U-shaped AVC curves occur because of diminishing, constant and increasing returns to scale.|
|15.||Economies of scale give rise to the rising portion of the long run average cost curve.|
See Page 8 for Q 5 combinations.
Q5 Choose the combination of statements that you think contains the largest number of TRUE statements.
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