Which of the following statements regarding short-term theory of production and cost analysis are true?…
In short-run cost theory, (c) when Average Cost equals Marginal Cost (AC = MC), AC is at its minimum point, and (e) the optimum level of output is where AC is minimum (AC =…
Choose your answer
Which of the following statements regarding short-term theory of production and cost analysis are true?
a. Economic rent is the same as economic profit.
b. Imputed cost is the rent of hired building.
c. When AC=MC, AC is minimum.
d. When MC is rising, AC>MC.
e. Output is optimum when AC=MC.
Answer and explanation
Correct answer B
In short-run cost theory, (c) when Average Cost equals Marginal Cost (AC = MC), AC is at its minimum point, and (e) the optimum level of output is where AC is minimum (AC = MC). Statement (b) is false because rent paid for a hired building is an explicit cost (not an imputed cost), and Statement (d) is false because MC can be rising while still below AC or above AC. Thus, 'a, c, e only' is correct.
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UGC NET Commerce