Question

State whether the following statements are true or false. Give reasons for your answer.

(a) Average product increases only when marginal product increases.

(b) Total cost can never be constant.

(c) Total revenue increases with every increase in output.

Answer 1

(a) False, because AP increases so long, as MP is greater than AP, whether MP is rising or falling.

(b) True, because TC can be constant only when MC is zero, which is not possible.

(c) False, because when a firm can sell more only by lowering the price, it is possible that TR falls after a level of output.