Which of the following is/are true about the short run costs?
(A) Marginal cost is the slope of total variable cost.
(B) Average fixed cost curve is a downward sloping rectangular hyperbola.
(C) Average variable cost curve is a U shaped curve.
(D) Average variable cost curve and average cost curve are parallel to each other.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A), (B) and (C) only
(A) Marginal cost is the slope of total variable cost – True. Marginal cost measures the change in total variable cost when output changes, so it represents the slope of the TVC curve.
(B) Average fixed cost curve is a downward sloping rectangular hyperbola – True. As output increases, total fixed cost is spread over more units, so AFC continuously falls forming a rectangular hyperbola.
(C) Average variable cost curve is a U-shaped curve – True. AVC first decreases due to increasing returns and then increases due to diminishing returns, giving it a U shape.
(D) Average variable cost curve and average cost curve are parallel to each other – False. The vertical distance between AC and AVC equals AFC, which decreases as output rises. Since the AFC curve is continuously falling (as a rectangular hyperbola), the vertical distance between the AC and AVC curves continuously decreases as output increases. Therefore, the curves move closer together and are not parallel.