In the graph, why does the gap between AC and AVC narrow as output rises? Short-run cost curves from the schedule. MC is 30, 20, 16, 14, 20, 32, 50 for the 1st to 7th unit, lowest at 14 for the 4th. AVC is 30, 25, 22, 20, 20, 22, 26, lowest at 20 for 4 and 5 units. AC (from 2 units) is 55, 42, 35, 32, 32, 34.57, lowest at 32 for 5 and 6 units. AFC falls from 30 at 2 units to 8.57 at 7. MC meets AVC at P (5 units, ₹20) and AC at Q (6 units, ₹32).

In the graph, why does the gap between AC…

In the graph, why does the gap between AC and AVC narrow as output rises?

Question 44

MediumOriginal question

In the graph, why does the gap between AC and AVC narrow as output rises?

Short-run cost curves from the schedule. MC is 30, 20, 16, 14, 20, 32, 50 for the 1st to 7th unit, lowest at 14 for the 4th. AVC is 30, 25, 22, 20, 20, 22, 26, lowest at 20 for 4 and 5 units. AC (from 2 units) is 55, 42, 35, 32, 32, 34.57, lowest at 32 for 5 and 6 units. AFC falls from 30 at 2 units to 8.57 at 7. MC meets AVC at P (5 units, ₹20) and AC at Q (6 units, ₹32).

MC falls as output risesCorrect answerYour answerTVC falls as output risesCorrect answerYour answerFixed cost falls as output risesCorrect answerYour answerThe gap is AFC, which falls as the fixed cost is spread over more unitsCorrect answerYour answer

Show the answer and explanation

CorrectNot quiteAnswer D

Correct answer: D

AC − AVC = AFC. At 2 units the gap is 55 − 25 = 30; at 6 units it is 32 − 22 = 10.
The total fixed cost stays ₹60, but per unit it shrinks as output grows.

Worth noting

TFC itself does not fall; only its share per unit does.

Concept: Gap between AC and AVC
Typical timeTypical: 70 s
Your timeYours: —

The rule this testsThe shapes of the cost curves

Practise this chapter →

Ten questions from Cost Curves, at your own pace.

Practise this chapter →

Ten questions from Cost Curves, at your own pace.

In the graph, why does the gap between AC and AVC narrow as output rises?

Question 44

Explanation