Cost Relations

Determine whether each of the following is true or false. Explain why.

A. Average cost equals marginal cost at the minimum efficient scale of plant.

B. When total fixed cost and price are held constant, an increase in average variable cost will typically cause a reduction in the breakeven activity level.

C. If EC > 1, diseconomies of scale and increasing average costs are indicated.

D. When long-run average cost is decreasing, it can pay to operate larger plants with some excess capacity rather than smaller plants at their peak efficiency.

E. An increase in average variable cost always increases the degree of operating leverage for firms making a positive net profit.