CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production
As output expands in the short run, the vertical distance between the average total cost curve and the average variable cost curve will:
The gap between the ATC and AVC curves decreases continuously as output rises. That gap is average fixed cost, which equals constant total fixed cost divided by output, so it keeps falling with larger output, although it never reaches zero.
- ARemain constant
- BIncrease continuously
- CDecrease continuouslyCorrect
- DFirst decrease and then increase
Explanation
The vertical gap between ATC and AVC equals average fixed cost (TFC/Q). Since TFC is constant, AFC falls continuously as output rises, so the gap narrows but never becomes zero. It does not remain constant because AFC is a rectangular-hyperbola shaped curve.
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