Question

Which of the following cost and production relationships is inaccurately stated?

A. Average Fixed Cost = Average Variable Cost minus Average Total Cost AFC = AVC - ATC
B. Marginal Cost = the change in Total Variable Cost divided by the change in quantity MC = ^TVC / ^Q
C. Total Variable Cost = Total Cost minus Total Fixed Cost TVC = TC - TFC
D. Average Product of Labor = Total Product of Labor divided by Labor APL = TPL / L
E. Marginal Cost = Wage of Labor divided by Marginal Product of Labor MC = w / MPL

Answer 1

Option A, stating Average Fixed Cost equals Average Variable Cost minus Average Total Cost (AFC = AVC - ATC), is incorrect. The proper relationship should be Average Fixed Cost equals Average Total Cost minus Average Variable Cost (AFC = ATC - AVC). Marginal Cost and other relationships are correctly stated in the options.

Step-by-step explanation:

The inaccurately stated cost and production relationship among the options provided is A. Average Fixed Cost = Average Variable Cost minus Average Total Cost (AFC = AVC - ATC). The correct relationship should be Average Fixed Cost = Average Total Cost minus Average Variable Cost (AFC = ATC - AVC). The cost and production relationships can be understood as follows:

• Average Total Cost (ATC) is calculated by dividing the Total Cost (TC) by the total quantity produced (Q).
• Average Variable Cost (AVC) is found by dividing the Total Variable Cost (TVC) by the quantity produced (Q).
• Marginal Cost (MC) represents the change in Total Cost (TC) divided by the change in output (ΔQ).
• Total Variable Cost (TVC) equals Total Cost (TC) minus Total Fixed Cost (TFC).
• Marginal Cost (MC) can also be expressed as the Wage of Labor (w) divided by the Marginal Product of Labor (MPL).

Therefore, only option A is inaccurately stated, as it should indicate that AFC equals ATC minus AVC, not the other way around.