Assume that the marginal cost of production is less than the average variable co

Question

Assume that the marginal cost of production is less than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing? Explain. If the marginal cost of production is less than the average variable cost of production, then OA. average variable cost could be rising or falling because marginal cost and average variable cost are unrelated. OB. average variable cost is falling because the cost of the last unit produced is adding less to total variable cost than Oc. average variable cost is rising because the cost of the last unit produced is adding more to total variable cost than OD. average variable cost is falling because marginal cost and average variable cost are equal. OE. average variable cost is falling because the cost of the last unit produced is adding to total variable cost. previous units did on average. previous units did on average

Explanation / Answer

Assume that the marginal cost of production is less than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing? Explain.

Ans:- If marginal cost is less (greater) than average variable cost, then each additional unit is adding less (more) to total cost than previous units added to the total cost, which implies that the AVC declines (increases). Therefore, we need to know whether marginal cost is greater than average variable cost to determine whether the AVC is increasing or decreasing.

If the marginal cost of production is less than the average variable cost of production, then

Ans:- B. Average variable cost is falling because the cost of the last unit produced is adding less to total variable cost than previous units did on average.

At the point where average cost reaches its minimum value

Ans:- D. average variable cost equals marginal cost.

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