Homework #5 - Finally if average variable cost is not...

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11/3/2009 Dr. Elliot Homework #5 1) If average variable costs are constant, what must be true of marginal cost? Average variable cost means that the variable cost is divided by total output. Marginal cost means as output changes from level to another, the change in total cost divided by the corresponding change in output. Therefore, when average variable cost is decreasing as input increases, marginal cost is less than the average variable cost. When average variable cost is increasing, then, marginal cost is greater than average variable cost.
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Unformatted text preview: Finally, if average variable cost is not falling or rising, marginal cost equals average cost. 2) If average variable costs are constant, what must be true of variable costs? Average variable cost means that the variable cost is divided by total output. Variable cost means that a cost varies with the level of an activity; the sum of all payments made to the firm’s variable factors of production. If average variable costs are constant, then variable costs will remain the same....
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