Question

Which of the following statements are true or false ? Give valid reasons in support of your answer.
(a) Average cost curve cuts Average variable cost curve, at its minimum level.
(b) Average product curve and Marginal product curve are ‘U-shaped’ curves.
(c) Under all market conditions, Average revenue and Marginal revenue are equal to each other.
(d) Total cost curve and Total variable cost curve are parallel to each other.

Answer 1

(a) False. AC and AVC curves are ‘U’ shaped curve. The vertical gap between AC and AVC curves represents AFC. As we know that with the increase in output, AFC continuously decreases, therefore with the increase in output the vertical gap between AC and AVC curves continuously decrease but never intersect.

(b) False. Average Product curve and Marginal product curve are inverse U-Shaped curves.
(c) False. In only perfect competition market average revenue and marginal revenue are equal to each other, not under all market conditions.
(d) True. The vertical gap between TC and TVC is remains constant because this vertical gap represents TFC and as we know that TFC remains the same or constant with the increase in output. Therefore, the vertical gap between TC and TVC curve remains same and both curves are parallel to each other.