If marginal cost is less than the average variable cost and output increases, average total cost ________ and average variable cost _______. (i) decrease; increase (ii) increase; decrease (iii) increase; increase (iv) decrease; decrease
If marginal cost is less than the average variable cost and output increases, average total cost ________ and average variable cost _______. (i) decrease; increase (ii) increase; decrease (iii) increase; increase (iv) decrease; decrease
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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Question
If marginal cost is less than the
(i) decrease; increase
(ii) increase; decrease
(iii) increase; increase
(iv) decrease; decrease
Expert Solution
Step 1
Total cost is the sum of total variable cost and total fixed cost. Total variable cost changes with level of output and total fixed cost does not change with the level of output.
Marginal cost shows the increase in total cost when an additional unit of input is used. Average cost is the per unit cost, it is the ratio of total cost and output level. Average variable cost is the ratio of total variable cost and level of output.
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