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Production And Costs
Question
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Draw average cost, average variable cost and average fixed cost curves on a single diagram and explain their relation.

Answer


Relationship between Average Cost, Average Variable Cost, Average Fixed Cost:

  1. AC is the vertical summation of AVC and AFC.
  2. The difference between AC and AVC falls as output increases but the difference of AC and AFC increase.
  3. As output increases, AC and AVC tend to be closer but their curves do not intersect each other because AFC always remains more than zero.

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Some More Questions From Production And Costs Chapter

What effect does a cost saving technological progress have on supply curve?

What effect does an increase in input price have on supply curve?

What effect does an increase in excise tax have on supply curve of product?

If a farmer grows rice and wheat, how will an increase in price of wheat affect supply curve of rice?

What is meant by market period?

How will an increase in number of firms shifts the market supply curve?

 

What is the shape of supply curve during very short (market period)?

What is the shape of supply curve during short or long period?

What is the price elasticity associated with a straight line supply curve passing through the origin?

Name three factors that can shift a supply curve.