Which of the following is also true?
(a) Marginal cost of production is at a minimum at the current level of output.
(b) Marginal cost is equal to average cost of production at the current level of output.
(c) Average fixed cost is at a minimum at the current level of output.
(d) Average variable cost exceeds average cost of production at the current level of output.
If you are unsure, start eliminating the ones you know are wrong:
i)AVC can’t exceed AC unless you have negative Fixed costs (which doesn’t happen) so not (d)
ii)AFC gets smaller the more you produce – you produce one more unit of output and it is smaller, so it can’t be at the minimum now, so not (c)
iii) It is common for marginal cost to rise as output increases, although not necessarily true for all cases, so (a) unlikely
What holds true is that when MC < AC, AC is falling, and when MC > AC, AC is rising. When MC = AC, AC is always at the minimum or maximum, so here the answer is (b)
October 10th, 2009 | eyeglass
If you are unsure, start eliminating the ones you know are wrong:
i)AVC can’t exceed AC unless you have negative Fixed costs (which doesn’t happen) so not (d)
ii)AFC gets smaller the more you produce – you produce one more unit of output and it is smaller, so it can’t be at the minimum now, so not (c)
iii) It is common for marginal cost to rise as output increases, although not necessarily true for all cases, so (a) unlikely
What holds true is that when MC < AC, AC is falling, and when MC > AC, AC is rising. When MC = AC, AC is always at the minimum or maximum, so here the answer is (b)
References :
Managerial Economics – 12ed – Hirschey