Chapter 10R, Problem 12MCQ

To determine

The correct option for defining relationship between marginal cost and average cost.

Answer to Problem 12MCQ

Option c is correct.

Explanation of Solution

Explanation for correct option:

c.

If marginal cost is above the average cost then total average cost increases if an additional unit is produced. It means if additional unit is produced then the cost incurred for producing that one additional unit will be higher than total average cost which will increase the total average cost. This is can be seen from the graph given below:

  

Explanation for incorrect options:

a.

If marginal cost is rising then it is not necessary that total cost will be rising because it can be compensated with the increasing returns. Therefore, option a is incorrect.

b.

the option given seems incorrect as there is no relationship between marginal cost and total average cost is defined. Therefore, option b is incorrect.

d.

This option is contradictory to the correct option as explained above. Therefore, option d is incorrect.

e.

This option is again contradictory to the correct option as explained above. Thus, option e is also incorrect.

Economics Concept Introduction

Marginal cost: Marginal cost refers to the cost of production which is incurred by the firm if one additional unit is produced. In other words, marginal cost is the cost incurred by the firm for producing an additional unit.