Question

If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23, what will happen to the average cost of production if the 15th unit is produced?a. Average cost could increase or decrease depending on what happens to variable costb. Average cost will fallc. Average cost could increase or decrease depending on what happens to fixed costd. average cost increases as more is produced

Answer 1

The correct answer is option b.

Step-by-step explanation:

The marginal cost of producing the 15th unit is $29.50.

The average cost of producing 14 units is $30.23.

The marginal cost is the cost involved in producing an additional unit of output. With increase in output produced, the total cost will also increase. Though the marginal cost is less than average cost, this means that the total cost is increasing at a decreasing rate. So, the average cost will decline.