Final answer:
The statement that average cost will rise when marginal cost is higher and will fall when marginal cost is lower is true. This reflects the relationship between the cost of producing additional units and the average cost per unit in a firm's production process.
Step-by-step explanation:
The statement is true: whenever the marginal cost exceeds the average cost, the average cost will increase with another unit of output. Conversely, if the marginal cost is less than the average cost, the average cost will decrease. This is because marginal cost is the additional cost of producing one more unit of output.
By calculating marginal costs, which typically involve rising figures due to diminishing marginal returns, a firm can gauge whether the production of additional units is beneficial to its profit margins.
There exists a point where marginal cost intersects with average cost. At this point, if the production continues, and if the marginal cost remains above this point, the average cost curve will start to slope upwards, indicating an increase in average costs per unit with every additional unit produced. If the marginal cost is below this intersection point, it will pull the average costs down as more units are produced.