Question

Which of the following statements is incorrect?

Average fixed cost (AFC), average variable cost (AVC), and average total cost (ATC) first decrease as quantity increases, reach a minimum, and then increase.

Average fixed cost (AFC) is calculated by dividing total fixed cost (TFC) by a specific quantity.

Average fixed cost (AFC) decreases as quantity increases.

Average variable cost (AVC), average total cost (ATC), and marginal cost (MC) first decrease as quantity increases, reach a minimum, and then increase.

Answer 1

The incorrect statement among the options provided is:

"Average fixed cost (AFC), average variable cost (AVC), and average total cost (ATC) first decrease as quantity increases, reach a minimum, and then increase."

This statement is incorrect because while average fixed cost (AFC) does decrease as quantity increases, average variable cost (AVC) and average total cost (ATC) do not necessarily decrease, reach a minimum, and then increase. AVC may initially decrease due to economies of scale, but it can eventually increase as diminishing returns set in. ATC will generally follow a similar pattern as AVC but always decreases due to AFC's continued decline. Thus, AVC and ATC may not follow the specific pattern of first decreasing, reaching a minimum, and then increasing as implied in the statement.