Chapter 10R, Problem 17MCQ

To determine

The correct option for given situation where marginal cost is rising and it is above average variable cost curve.

Answer to Problem 17MCQ

Option b is correct.

Explanation of Solution

Explanation for correct option:

b.

When marginal cost is rising and it lies above average variable cost then it is definitely rising as shown in the graph below:

  

This happens due to the increase in average total cost for producing additional unit. Therefore, option b is correct.

Explanation for incorrect options:

b.

If marginal cost is rising and it lies above the average variable cost curve then average total cost is definitely rising. Therefore, option a is incorrect.

c.

If marginal cost curve lies below the average total cost curve then the average total cost will be falling whereas if marginal cost curve is above the average total cost curve then it is rising. Therefore, option c is incorrect.

d.

If the marginal cost is increasing then it will definitely affect the average total cost. The average total cost will not be constant if marginal cost is changing. Therefore, option d is incorrect.

e.

Since option b is correct, option e is 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.