Which of the following statements regarding the short-term theory of production and cost analysis are…
In short-run production and cost analysis: Statement (B) is false because the rent paid for a hired building is an explicit out-of-pocket cost, whereas imputed cost refers…
Choose your answer
Which of the following statements regarding the short-term theory of production and cost analysis are false?
A. Economic rent is the same as economic profit
B. Imputed cost is the rent of a 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 production and cost analysis: Statement (B) is false because the rent paid for a hired building is an explicit out-of-pocket cost, whereas imputed cost refers to the notional opportunity cost of self-owned resources; and Statement (D) is false because once Marginal Cost (MC) passes its minimum and rises, it intersects Average Cost (AC) at AC's minimum point and thereafter MC > AC (so AC is not greater than MC throughout MC's rising phase). Thus, B and D only are false.
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UGC NET Commerce