Which of the following is always true of the relationship between average and marginal costs? aAverage total costs are increasing when marginal costs are increasing. bMarginal costs are increasing when average variable costs are higher than marginal costs. cAverage variable costs are increasing when marginal costs are increasing. dAverage variable costs are increasing when marginal costs are higher than average variable costs.
Question
Which of the following is always true of the relationship between average and marginal costs? aAverage total costs are increasing when marginal costs are increasing. bMarginal costs are increasing when average variable costs are higher than marginal costs. cAverage variable costs are increasing when marginal costs are increasing. dAverage variable costs are increasing when marginal costs are higher than average variable costs.
Solution
The relationship between average and marginal costs is a fundamental concept in microeconomics. Here's a breakdown of each statement:
a) Average total costs are increasing when marginal costs are increasing. This is not always true. Average total costs can increase even if marginal costs are decreasing, as long as marginal costs are above average total costs.
b) Marginal costs are increasing when average variable costs are higher than marginal costs. This is not necessarily true. Marginal costs can increase or decrease regardless of the level of average variable costs.
c) Average variable costs are increasing when marginal costs are increasing. This is not always true. Average variable costs can increase even if marginal costs are decreasing, as long as marginal costs are above average variable costs.
d) Average variable costs are increasing when marginal costs are higher than average variable costs. This is true. When marginal cost is greater than average variable cost, the average variable cost will increase. This is because the additional (marginal) cost of producing one more unit is adding more to the total cost than the average, pulling the average up.
Similar Questions
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