Question

Which of the following is incorrect in the short run?

O Average Total Cost = _____(Total Fixed Cost/Quantity).
O Average Total Cost = _____(Average Variable Cost + Average Fixed Cost),
O Marginal Cost = _____(ATotal Variable Cost/ Quantity) = ____(ATotal Cost/AQuantity).
O Average Variable Cost =____(Total Variable Cost/Quantity).

Answer 1

The incorrect formula in the short run is the provided incorrect expression for Marginal Cost, which should be calculated using the change in total cost divided by the change in quantity (MC = ∆TC/∆Q), not as outlined in the original question.

Step-by-step explanation:

The question asks which of the given formulas for calculating costs in the short run is incorrect. To address this, we need to examine what each formula is supposed to represent:

• Average Total Cost (ATC) is calculated by dividing the Total Cost (TC) by the quantity (Q) of output produced. It is expressed as ATC = TC/Q.
• Average Variable Cost (AVC) is found by dividing the Total Variable Cost (TVC) by the quantity of output produced, AVC = TVC/Q.
• Marginal Cost (MC) is the increase in total cost when one additional unit of output is produced. It is calculated by the change in Total Cost (∆TC) divided by the change in quantity (∆Q), MC = ∆TC/∆Q.

The formula given for Marginal Cost in the question, 'Marginal Cost = _____(ATotal Variable Cost/ Quantity) = ____(ATotal Cost/AQuantity)', is incorrect because Marginal Cost should be calculated using the change in total cost, not average total variable cost or total cost per quantity.