Final answer:
The statement is B. false; increasing output will not necessarily increase the average cost even if marginal cost exceeds average cost due to the potential effects of economies and diseconomies of scale.
Step-by-step explanation:
If at the current level of output, the marginal cost of chairs exceeds the average cost, it suggests that the production cost for each additional chair is higher than the cost of the previous units produced. This scenario assumes increasing marginal costs. However, the question of whether increasing output will cause the average cost to increase is not always straightforward. It is a common misunderstanding to assume that a high marginal cost automatically translates to an increase in average cost with more production.
False, the average cost will not necessarily increase if output is increased. If the firm is already producing at an output level where the marginal cost (MC) is above the average cost (AC), an increase in output will continue to increase the MC, but it can potentially bring the AC downward or up depending on where the firm is on its average cost curve. This is due to the possibility of economies or diseconomies of scale. If the firm is operating in the economies of scale region (where increasing production leads to lower average costs), the AC may still decrease despite MC being above AC.
It is only when the firm is producing at an output level beyond the minimum efficient scale, where diseconomies of scale set in, that increasing output will result in an increase in both MC and AC. Thus, the statement that increasing output will increase AC is not categorically true. It depends on the economies of scale.