When marginal costs are increasing
A) a firm is experiencing diminishing returns.
B) average cost is always increasing.
C) average cost is always decreasing.
D) marginal costs are always greater than average costs.

Question

Quizplus · Accepted Answer

When marginal costs are increasing, it means that each additional unit of input is becoming less efficient in producing output. This is a sign of diminishing returns, which occurs when adding more inputs to a fixed amount of resources causes output to increase at a decreasing rate. As a result, the cost of producing each additional unit increases, which leads to an increase in marginal costs. While this may lead to an increase in average cost, it is not always the case that average cost will increase; it depends on the relationship between marginal and average costs. Additionally, it is not always the case that marginal costs will be greater than average costs; this also depends on the relationship between the two.

When Marginal Costs Are Increasing