Average total cost a

Economics Dec 07, 2020

Average total cost

a. increases as output increases.

b. decreases as output increases.

c. increases if marginal cost is increasing.

d. increases if marginal cost is greater than average total cost.

e. Both c and d.

Expert Solution

The correct answer to the given question is option b. decreases as output increases.

The average total cost for a firm is usually determined by dividing the sum of total fixed cost and total variable cost with the output quantity. Thus, as the output increases, the average total cost usually decreases if the marginal cost is not increasing where the marginal cost indicates the cost associated with one additional unit of output. Moreover, the marginal cost is primarily on account of variable cost associated with one additional unit of output because the fixed cost does not change with output.

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