Question

​Tony's Taco Truck has an average variable cost of $1.50 and a marginal cost of $2 when it produces 50 units of output (tacos). We can conclude that the average variable cost of producing 51 tacos isa. ​higher than $1.50. b. ​lower than $1.50. c. ​equal to $1.50. d. ​either higher or lower than $1.50 depending on the direction of the marginal cost curve.

Answer 1

a. ​higher than $1.50.

Step-by-step explanation:

Remember that marginal cost is the amount of money that it would cost a producer to make an extra unit or extra units of a certain product, as you read from the problem description we have a higher than normal cost of $2 as marginal cost, that means that the average variable cost will be higher than 1.50 because that is the average when all of the tacos costed 1.50, as soon as the first 2 dollar taco enters the averafe it will increase the cost.

Answer 2

The correct answer is option a.

Step-by-step explanation:

The average variable cost is given at $1.50.

The marginal cost is $2.

The quantity of output produced is 50 units.

The average variable cost curve is a U shaped curve. The marginal cost is equal to the average variable cost at its minimum point. So if the marginal cost is higher than the average variable cost it indicates the AVC is increasing.

So the average variable cost for producing 51 units of tacos will be higher than $1.50.