Following a cut in the level of output, the difference between average total cost and average variable cost decreases.

True

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False

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Solution

The correct option is B False
The difference between average total cost (ATC) and average variable cost (AVC) is equal to AFC (average fixed cost). It must decrease as output increases, because AFC = $\frac{T F C}{Q}$ . Implying that the difference between ATC and AVC must rise following a cut in the level of output.

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