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If marginal cost is less than average cost, at current levels of production, a
If marginal cost is less than average cost, at current levels of production,
a. average cost is increasing with output.
b. average cost is decreasing with output.
c. total cost is decreasing.
d. average cost is at a minimum.
Expert Solution
The correct answer is b. the average cost is decreasing with output.
Reason: When the marginal cost is lower than the average cost at a specific production level, then average costs decrease due to an increase in the quantity of output.
The average cost means per unit cost of manufacturing which is computed by the division of total cost by the sum of output. The level of output maximizes in an industry, then it leads to a reduction in per-unit cost or an average cost of production.
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