Question

Sam, a cost analyst for Jiffy, observes that when they are producing 700 jars of peanut butter an hour, their marginal cost is 40

cents ($0.40) and their average variable cost is only 45 cents ($0.45). From this, Sam concludes that average total costs must be
as they increase production from 700 jars per hour.
and average variable costs must be


Falling falling
Rising rising
Rising falling
Falling rising

Answer 1

Based on the information provided, if the marginal cost is lower than the average variable cost, it suggests that the average variable cost must be falling as production increases. As for the average total cost, we don't have enough information to determine its direction.

Answer 2

Sam's observation indicates the following conclusions:

1. From the given information, Sam can conclude that average total costs must be falling as they increase production from 700 jars per hour.
2. Sam can also conclude that average variable costs must be rising as they increase production from 700 jars per hour.