4. If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units o output is $30.23, what will happen to the average cost of production if the 15th unit is produced? 1. Average cost will fall. My question is why will Average cost fall?

4. If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units o output is $30.23, what will happen to the average cost of production if the 15th unit is produced? 1. Average cost will fall. My question is why will Average cost fall?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter7: Economies Of Scale And Scope

Section: Chapter Questions

Problem 11MC

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Concept explainers

Cost of Production

In economic theory, production costs are the costs incurred by an industrial organization when it engineers a project or provides a service that generates revenue and benefits. Labor costs, raw materials, consumable manufacturing costs, and general overhead sum up, accounting for production costs. Total cost data is calculated by combining total direct costs of materials, labor costs, and total production costs.

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4. If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of
output is $30.23, what will happen to the average cost of production if the 15th unit is produced?
1. Average cost will fall.
My question is why will Average cost fall?

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Average cost curves (except for avenge fixed cost) tend to be U-shaped, decreasing and then increasing. Marginal cost curves have the same shape, though this may be harder to see since most of the marginal cost curve is increasing. Why do you think that average and marginal cost curves have the same general shape?
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