State whether the following statements are true or false. Give reasons for your answer:
State whether the following statements are true or false. Give reasons for your answer:
(i) Average cost falls only when marginal cost falls.
(ii) As output increases the difference between average cost and average variable cost decreases.
3 Answers
(i) False, Average cost falls only when MC < AC, Average cost can fall even when MC is rising.
(ii) True, The difference between AC and AVC is true to AFC. As output increases AFC decreases, so the difference between AC and AVC decreases.
(a) False, because when MP falls, while TP increase at a diminishing rate only upto a point, then starts falling.
(b) False, because AC rises only when MC is greater than AC.
(c) False, because when a firm can sell more only by lowering the price it is possible that marginal revenue becomes negative after a level of output.
(i) False. Difference between the value of exports and imports of goods and services is called Balance of Payment not Balance of Trade.
(ii) False. It is a part of Balance of Payments or external assistance is recorded in Balance of Payments Account.