(Figure: The Profit-Maximizing Firm in the Short Run) Use Figure: The Profit-Maximizing Firm in the Short Run.Which statement is TRUE?

A) AFC is represented by the vertical distance between curve M and curve N at any level of output.
B) AFC is represented by the vertical distance between curve N and curve O at any level of output.
C) This figure illustrates the long run because all costs are variable.
D) Quantity q₂ is to the left of the shut-down point.

Question

Ikhmal Ashraff · Accepted Answer

Final Answer : B, Explanation :  AFC is represented by the vertical distance between curve N and curve O at any level of output. Curve N represents total fixed costs, and curve O represents total costs (fixed costs plus variable costs) at different levels of output. Therefore, the vertical distance between N and O represents variable costs, and the vertical distance between M and N represents total fixed costs (AFC). Option A is incorrect because curve M represents average fixed costs (AFC), and curve N represents total fixed costs. Option C is incorrect because the figure only illustrates the short run because fixed costs are present. Option D is incorrect because quantity q 2  is to the right of the shut-down point, which is where the marginal cost curve intersects the average variable cost curve.

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