Posted by Anjali Kaur on Sep 11, 2020
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Answer the Subscribers

Hi There! Its time for the ‘Answer the subscribers’.

Today I will be addressing some of my valuable subscribers’ questions. I have been getting several emails/messages on Facebook regarding economics doubts. So, I will be answering the most common questions asked by the LWA subscribers.

Q1. What is the relation between ATC and MC?

Just revisit my post on Average Total Cost. The trick to answer questions on the relationship is to know the shape of the curves and draw them first. As shown below the ATC and MC graph:

Production Cost and Cost Curves

Now, observe and write the relation:

  1. Both ATC and MC are U-shaped.
  2. When ATC is falling, ATC is greater than MC.
  3. When ATC is constant, ATC = MC.
  4. When ATC is rising, ATC is less than MC.
  5. MC cuts ATC at its lowest point.
  6. ATC can fall even when MC is rising.

Q2. What is the relation between MC and TC?

You can read my post on The relation between TC, TVC, and TFC. We will draw the graph of MC and TC as shown below:

Now, observe and write the relation:

  1. When MC is decreasing, TC is increasing at a decreasing rate.
  2. When MC is constant, TC is increasing at a constant rate.
  3. When MC is increasing, TC is increasing at an increasing rate.

Q3. What is the relation between MC and AVC?

Draw there curves and find out:

Explain the Relationship Between Marginal Cost and Average Variable Cost, -  Sarthaks eConnect | Largest Online Education Community
  1. Both AVC and MC are U-shaped.
  2. When AVC is falling, AVC is greater than MC.
  3. When AVC is rising, AVC is less than MC.
  4. When AVC is constant, AVC = MC.
  5. MC cuts AVC at its lowest point.

Q4. “Real GDP takes inflation into account”. What does it mean?

Answer. For this I recommend reading my post on Real and Nominal GDP.

Real GDP takes inflation into account means, it is calculated after adjusting the inflation. Real GDP = Nominal GDP X 100/ Inflation.

The inflation and Price index are the same. So, real GDP includes inflation and shows the real picture of any economy.

For comparing the growth of any economy, real GDP is taken and not the nominal GDP.

Q5. If the product is made in 2019, and not sold in that year and in 2020 a person can buy such a product how it will count in GDP?

Answer. GDP is the value of goods and services produced within a country during an accounting year.

So, if the product is produced in 2019, its value will be included in 2019 GDP.

Q6. If a car is made in 2019 and purchased by someone. If that car is sold on profit, will the person profit be included in GDP?

Answer. I will recommend reading precautions while calculating national income.

In 2019, the car is made, so it will be included in the GDP of 2019. If a person sells the car on profit, then that additional profit will also be included in GDP.

We also pay tax on the profit earned on selling a car.

Q7.

Answer. The way we have eyes on our faces and feet below. Similarly, the independent variable is on the vertical axis and the one which is dependent is placed on horizontal axis. Our legs depend on us to move, that is why they are placed down. Our eyes are independent that’s why it’s above.

Thank You!

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