ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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is the lowest when the marginal product of labour is the highest
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rises when the marginal product of labour rises
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falls when the average products of labour falls
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is lowest when the average products of labour is the highest
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Detailed explanation-1: -When a firm’s only variable input is labor, the average variable cost (AVC): A. rises when the marginal product of labor rises.
Detailed explanation-2: -In economics, average variable cost is a firm’s variable cost divided by the quantity of output produced. It is at its minimum at the point when marginal cost (MC) crosses the minimum points of both the average cost (AC) and average variable cost (AVC) curve.
Detailed explanation-3: -If the product’s price is greater than the firms’ average variable cost but less than the ATC, the firm has a scope to continue the production process easily. In such a case, the firms can continue to produce at the output level at which MC = MR. The equilibrium position can help the firm to cover up the costs easily.
Detailed explanation-4: -A similar relationship holds between marginal cost and average variable cost. When marginal cost is less than average variable cost, average variable cost is decreasing. When marginal cost is greater than average variable cost, average variable cost is increasing.