Assertion: For the first unit of output SMC and AVC are the same.
Reasoning: As long as AVC is falling, SMC must be more than the AVC.
Answer & explanation
Correct answer: option 3
The correct answer is Option 3: Assertion (A) is true but Reasoning (R) is not correct.
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Assertion: For the first unit of output SMC and AVC are the same. This is correct. For the first unit, the total variable cost is the same as the cost of producing that single unit. Therefore, AVC and SMC are equal.
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Reasoning: As long as AVC is falling, SMC must be more than the AVC.This is incorrect. In fact, the opposite is true.
- When AVC is falling, it means that the cost of producing an additional unit (SMC) is lower than the average variable cost.
- Therefore, when AVC is falling, SMC must be less than AVC.
- When AVC is rising, SMC must be more than the AVC.