A firm is producing 20 units with an average total cost of $25 and a marginal cost of $15

The correct answer the given question is option a. marginal cost would decrease.

The decision as to whether production should be increased from current output level of 20 units to 21 units is usually taken by using marginal analysis. Such analysis usually considers only incremental costs and incremental revenues while it ignores sunk costs and non-incremental fixed costs. Thus. production should be increased to 21 units only if the marginal cost of 21st unit is less than the marginal revenue for 21st unit. In other words, the production should be increased to 21 units only if the marginal cost decreases at the same level of marginal revenue or price.