Question

If the marginal cost of production is greater than the average cost, in what direction must the average cost be changing, if any?

a) The average cost must be falling.
b) The average cost must be rising.
c) The average cost is unaffected.
d) The average cost would become non-existent.
e) The average cost would equal 0.

Answer 1

b) The average cost must be rising.

Step-by-step explanation:

Assuming that the entity produce 4 units and its total cost is $16 so average cost per unit is $4 and now the same entity has produced the 5th unit at $5 so the average cost now per unit is (16+5)/5=$4.2

So based on the above discussion, it can be concluded that average cost increase when the marginal cost of production is increased.

So the answer is b) The average cost must be rising.