Short run cost curves (4)
Activity 23c
a.
Increase
b.
Decrease
c.
Remain unchanged
The correct answer is b.
Answer
If output increases from a quantity of 3000 per day, average cost will fall. This is because at this output the average cost curve is sloping downwards.
Increasing output will reduce the average cost until it reaches a minimum at a quantity of approximately 5000 per day. Then the average cost curve slopes upwards, so average cost increases when output increases beyond 5000 per day.