Which of the following statements is correct? a

Answer: d. If the average total cost is rising, then the marginal cost is greater than the average total cost.

The formula to compute the marginal cost is:

Marginalcost=ChangeintotalcostChangeinoutputMarginalcost=ChangeintotalcostChangeinoutput

Marginal cost is the increase in cost when producing an additional output. Since total fixed costs is constant, marginal costs is affected by the variable costs.The formula to compute the average total cost:

Averagetotalcost=Averagefixedcost+AveragetotalcostORAveragetotalcost=TotalcostOutputAveragetotalcost=Averagefixedcost+AveragetotalcostORAveragetotalcost=TotalcostOutput

The average total cost is the mean total cost incurred per unit. Let us illustrate the marginal cost and the average total cost in the graph.

At first, the average total cost is decreasing at a high rate due to fewer outputs are absorbing the fixed costs. It will start increasing after reaching its minimum average total cost. Fixed costs are spread in a smaller amount as more outputs absorb the fixed costs. At that time, only variable costs significantly affect the average total costs. The rise in average total cost causes the marginal cost to be greater than the average total costs.

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