Final answer:
The statement is true: if the marginal cost (the additional cost of producing one more unit of output) is higher than the average cost, it will pull the average cost higher, as the average cost is the cost per unit of all units produced.
Step-by-step explanation:
When assessing the relationship between marginal cost and average cost, it is essential to understand that marginal cost represents the change in total cost due to the production of one additional unit of output. Conversely, average cost calculates the cost per unit of all units produced. If the marginal cost is higher than the average cost, this will indeed pull the average cost upward as the additional unit's cost is above the average. This means that if you produce one more unit and that unit's cost is more than the current average, it will increase the overall average cost. However, this effect depends on the specific values of marginal and average costs at a point in production.
In the early stages of production where economies of scale may be present, the marginal cost could be below the average cost, decreasing the average cost as output increases. It's important to remember that marginal costs are typically rising due to the law of diminishing marginal returns. After a certain point, producing additional units will become progressively more expensive, which will influence average cost dynamics. Therefore, the statement is True, but with the clarification that it applies when marginal cost is greater than average cost.