CA Foundation · Business Economics · Theory of Production and Cost
In the short run, as output increases from zero, which cost curve is the vertical distance between the average total cost (ATC) curve and the average variable cost (AVC) curve equal to?
The gap equals average fixed cost, because ATC is the sum of AVC and AFC. As output rises, AFC falls, so the vertical distance between the ATC and AVC curves narrows but never becomes zero.
- AMarginal cost at that output
- BAverage fixed cost at that outputCorrect
- CTotal fixed cost at that output
- DAverage variable cost at the minimum point
Explanation
ATC = AVC + AFC, so ATC - AVC = AFC at every output. Since AFC = TFC/Q falls as Q rises, the gap between ATC and AVC narrows continuously. It is not TFC, which is a total, not a per-unit amount.
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