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Question

Which of the following statements about a firm's average cost curves is false?

A Its SAC curve will stay put if the price of an input that is fixed in the short run increases. Correct Answer Incorrect Answer
B Its SAC curve will shift upwards if the price of an input that is variable in the short run increases. Correct Answer Incorrect Answer
C Its SAC curve will generally lie above its LAC curve. Correct Answer Incorrect Answer
D Its LAC curve will shift upwards if new firms enter its industry and there are external diseconomies of scale. Correct Answer Incorrect Answer
E None of the above Correct Answer Incorrect Answer

Solution

Statement a is false. A rise in the price of a fixed input increases a firm's total costs, even though it cannot alter the quantity of this input that it uses in the short run. As its total cost for each output level increases, the average cost of each output level increases, so its SAC curve shifts upwards.

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