Question 48
Theory of Costs and RevenueA firm operating at full capacity will experience rising short-run total costs when
- A.prices of its variable inputs rise
- B.prices of its variable inputs fall
- C.there is a change in management
- D.labour productivity increases
Show the answer and explanation
Answer: A (prices of its variable inputs rise)
Explanation
With output fixed at full capacity, total cost rises if the inputs it uses, such as raw materials and labour, become dearer.