Which of the following statements about short run cost curves is NOT correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The short run average cost curve lies below the average variable cost curve.
SAC = AVC + AFC. AFC is always positive, so SAC lies above AVC, never below it.
Option (1) The short run average cost curve lies below the average variable cost curve. — False. SAC lies above AVC, by the amount of AFC.
Option (2) The total fixed cost curve is a horizontal straight line. — True. TFC is the same at every output, so its curve is flat.
Option (3) The total cost curve is the vertical sum of the TFC and TVC curves. — True. At each output, TC is TFC plus TVC, so the TC curve is TVC lifted up by TFC.
Option (4) The vertical gap between the SAC curve and the AVC curve equals AFC. — True. The gap between SAC and AVC is AFC.
NCERT (2026-27): “Shapes of the Short Run Cost Curves … SAC curve is therefore ‘U’-shaped. It lies above the AVC curve with the vertical difference being equal to the value of AFC. The minimum point of SAC curve lies to the right of the minimum point of AVC curve.” “Shapes of the Short Run Cost Curves … Figure 3.3 illustrates the shapes of total fixed cost, total variable cost and total cost curves for a typical firm. We place output on the x-axis and costs on the y-axis. TFC is a constant which takes the value c1 and does not change with the change in output. It is, therefore, a horizontal straight line cutting the cost axis at the point c1.”
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