Question

If a factory has a short-run capacity constraint (e.g., an auto plant can only produce 800 cars per day at maximum capacity), the marginal cost of production becomes ________ at the capacity constraint.

Answer 1

Infinite

Step-by-step explanation:

Short-run capacity constraint: It is defined as the inability of the production houses to produce more products in the short run. Therefore, the cost of producing one additional unit of product is infinite at a capacity constraint.

In a short-run production process, the marginal cost is rising and the average variable cost is falling as output is increased. Thus, the marginal cost is below average variable cost.

In the given case, Factory has a capacity constraint of producing only 800 cars per day, which leads to the infinite marginal cost of production.