Choose the correct statements from the options given below in terms of the shapes of the short run cost curves.
(A) Average fixed cost curve is a rectangular hyperbola.
(B) Total fixed cost is horizontal straight line.
(C) Average variable cost is upward sloping.
(D) Marginal cost is U shaped.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (D) only
-
(A) Average fixed cost curve is a rectangular hyperbola. (Correct). The formula is AFC=TFC/Q. Since TFC is a constant, the product AFC×Q is constant, which defines a rectangular hyperbola.
-
(B) Total fixed cost is a horizontal straight line. (Correct). Total fixed cost (TFC) does not change with the level of output (Q), so when plotted against Q, it is a horizontal line.
-
(C) Average variable cost is upward sloping. (Incorrect). The Average Variable Cost (AVC) curve is typically U-shaped in the short run, meaning it initially falls, reaches a minimum, and then rises (becomes upward sloping).
-
(D) Marginal cost is U shaped. (Correct). The Marginal Cost (MC) curve is U-shaped due to the Law of Variable Proportions (or diminishing marginal returns). It initially falls and then rises, intersecting the AVC and ATC curves at their minimum points.