Question

In the short run, if marginal cost is greater than average total cost, producing an extra unit of output must raise average total cost.

a) True.
b) False.

Answer 1

In the short run, if the marginal cost is greater than the average total cost, producing an extra unit of output must raise the average total cost.

Step-by-step explanation:

In the short run, if the marginal cost is greater than the average total cost, this means that each additional unit of output is costing more than the average cost of producing all units. Therefore, producing an extra unit of output must raise the average total cost.

To understand this, let's consider an example:

If a firm is producing 10 units of output, with an average total cost of $5 and a marginal cost of $8 for producing the 11th unit, the average total cost will increase. This is because the marginal cost is higher than the current average cost, pulling it up.