5 In the short run suppose average total cost is a straight

5. In the short run, suppose average total cost is a straight line and marginal cost is positive and constant. Then, we know that: A) marginal cost is less than average total cost. B) average total cost is positive and constant C) average total cost equals marginal cost. D) A and B are correct. E) B and C are correct.

Solution

In the short run,suppose average total cost is a straight line and marginal cost is positive and constant.Then ,we know that:

Average total cost is positive and constant and also,average total cost equals marginal cost therefore,

Option (E)

Marginal cost is the change in total cost when one more unit is produced.Average cost is the total cost divided by number of output produced.Because the fixed cost is constant in the short run,when MC =AC,the average cost remains constant.