Consider an output beyond the minimum point of a firm's short run average total cost curve. At this level of output the firm can use its input at a lower average cost but only by using its input at a higher average cost.

A) fixed capital; variable labor
B) variable labor; fixed capital
C) variable capital; fixed labor
D) fixed labor; variable capital

Question

Consider an output beyond the minimum point of a firm's short run average total cost curve. At this level of output the firm can use its ________ input at a lower average cost but only by using its ________ input at a higher average cost.

A) fixed capital; variable labor
B) variable labor; fixed capital
C) variable capital; fixed labor
D) fixed labor; variable capital

jourdan daily · Accepted Answer

Final Answer : A, Explanation :  In the short run, a firm's capital (or any fixed input) is fixed, and labor (or any variable input) is variable. Beyond the minimum point of the short run average total cost curve, the firm can spread its fixed costs over more units of output, lowering the average cost of the fixed input. However, to increase output, it must use more of the variable input, which can lead to diminishing returns and thus a higher average cost for the variable input.

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