State whther the following are true/false. Give reasons.
(i) When total revenue is constant average revenue will also be constant.
(ii) Average variable cost can fall even when marginal cost rising.
(iii) When marginal product falls, Average revenue product will also fall.
(iv) Average revenue is also called price.
(v) Average revenue curve is also caled Demand curve.
(vi) If total cost curve is parallel to x-axis then marginal cost will be zeroPlease Provide The Reasons As Well.
i. No, when total revenue is constant average revenue will not be constant. Infact the situation where TR curve is horizontal line (constant)does not exist. This is because even if the price is constant, output can never be constant. However, in some books it is given that when TR is constant, AR will be downward sloping, which is a mere flaw in the concept. Students are advised not to follow this concept.
ii. Yes, average variable cost can fall even when marginal cost is rising so long as MC
iii. No, this is not necessary. The reason for this lies in the situation when after the point of inflexion (where MP reaches its maximum), MP starts falling while AP continues to rise. This happens because MP rises at a faster rate than AP and reaches its maximum point earlier than the maximum of AP. Hence, when MP starts falling, AP still rises.
iv. Yes, Average Revenue is also called price because AR is defined as revenue earned per unit of output sold. Thus, AR is same as that of price of the output.
v. Yes, average revenue is called demand curve. This is because average revenue curve shows different quantities of output that the firm can sell at different prices or in other words, it shows the demand for different quantities of output at different prices.
vi. Yes, if total cost is parallel to x-axis i.e. constant, marginal cost will be equal to zero. This is because MC is defined as the additional cost to the Total Cost, which is incurred for producing one more unit of output (it can be calculated as MCn=TCn–TCn– 1). Thus, when TC is constant (parallel to x-axis), TCn will be equal to TCn– 1 or, in other words, the additional cost to total cost is zero. Hence, when TC is parallel to x-axis, MC will be zero.
i AR will be falling eg.let TR be 10 20 30 40 at output 1 2 3 4 .calculate ar .it seems to be falling OR When tr is maximum ar is 0.
vi.yes but this does not happen in actual situations as tc=tvc+tfc.during short period tvc change with change in output