• The correct answer is a. average cost will be higher than at the old output.

The formula to determine the average total cost is:

Averagetotalcost=TotalcostTotaloutputorAveragetotalcost=Averagefixedcost+AveragevariablecostAveragetotalcost=TotalcostTotaloutputorAveragetotalcost=Averagefixedcost+Averagevariablecost

The formula to determine the marginal cost is:

Marginalcost=ChangeintotalcostChangeintotaloutputMarginalcost=ChangeintotalcostChangeintotaloutput

The marginal cost is the increase in cost for producing the last output. When the marginal cost is higher than the average cost of production, the average cost will increase, and vice versa. Based on the current output of 1,041 cables per month, the average cost ($11.97) is less than the marginal cost ($18.54). This means that the average cost is increasing. Therefore, the increase in output to 1,288 cables per month will have an average cost that the old output.