Which of the following are true? (1) Average fixed costs never increase
with output; (2) average total costs are always greater than or equal to
average variable costs; (3) average cost can never rise while marginal costs are declining.
(2) average total costs are always greater than or equal to average variable costs.
To determine which statements are true, let's analyze each one individually:
1) Average fixed costs never increase with output:
This statement is true. Fixed costs are costs that do not vary with the level of output. Examples include rent, salaries, and insurance. Since fixed costs remain constant regardless of the level of production, dividing them by the number of units produced (output) will result in decreasing average fixed costs as output increases.
2) Average total costs are always greater than or equal to average variable costs:
This statement is also true. Total costs include both fixed costs and variable costs. Variable costs, as the name suggests, vary with the level of output (e.g., raw materials, direct labor). Average variable costs are calculated by dividing variable costs by the number of units produced. Since total costs include fixed costs, they will always be greater than or equal to variable costs.
3) Average cost can never rise while marginal costs are declining:
This statement is false. Average cost is calculated by dividing total costs (both fixed and variable costs) by the quantity of output. Marginal cost, on the other hand, represents the additional cost incurred by producing one additional unit of output. While average cost may decline as output increases due to economies of scale, marginal costs may initially decrease (due to specialization or bulk purchasing) and later increase (due to diminishing returns or increased resource scarcity). Therefore, average cost can rise even if marginal costs are declining.
In conclusion, statements 1 and 2 are true, while statement 3 is false.
Out of the three statements provided, (2) and (3) are true, while (1) is false.
(1) Average fixed costs can increase with output. Fixed costs refer to costs that do not vary with the level of production or output, such as rent for premises or machinery. As production increases, fixed costs can be spread over a larger number of units, resulting in a decrease in average fixed costs. However, if fixed costs increase due to factors like increased rent or maintenance costs, average fixed costs can increase with output.
(2) Average total costs (ATC) are always greater than or equal to average variable costs (AVC). Average total costs include both fixed costs and variable costs, while average variable costs only consider the costs that vary with the level of production. Since average total costs incorporate average variable costs along with fixed costs, ATC will always be greater than or equal to AVC.
(3) Average cost can rise while marginal costs are declining. Average cost is the total cost divided by the number of units produced, while marginal cost is the change in total cost resulting from producing an additional unit. The average cost can rise while marginal costs are declining if the additional unit produced has a lower variable cost, but the total average cost is still high due to other factors like fixed costs or inefficiencies in production.