Question

Much of the empirical evidence on the behavior of costs for real-world firms suggests that:

A. there is no relationship between the marginal and average variable costs of production.
B. for many firms, marginal and average variable costs are constant over wide ranges of output.
C. average costs functions are U-shaped as suggested by economic theory.
D. for most firms, marginal costs are declining in the range in which the firms operate.

Answer 1

B. for many firms, marginal and average variable costs are constant over wide ranges of output.

Step-by-step explanation:

Traditional Cost Theory : Marginal & Average Variable Cost are U shaped.

Modern theory of cost behaviour for real world firms suggest - 'short run average variable cost (SAVC)' is saucer shape curve, ie flat (constant) stretch over a wide range of output.

Such shape of SAVC is due to 'reserve capacity' of production by firms, to meet up unexpected demand change due to seasonal or consumer taste changes. This reserve capacity prevents the SAVC to rise immediately after falling (as per U shape) & rather sustains it constant for a wide range of output (as a saucer shape)