2.True-False Questions: Cost Relations (8 points)

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

a). Average cost exceeds marginal cost at the minimum efficient scale of plant.

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

c). If _C > 1, increasing returns to scale and increasing average costs are indicated.

d). When long-run average cost is increasing, it can pay to operate larger plants with some excess

capacity rather than smaller plants at their peak efficiency.