Which of the following statements about cost is correct?
A) Marginal cost is constant.
B) Marginal cost is always falling.
C) Average total cost is U-shaped.
D) Average total cost always declines.

Question

Quizplus · Accepted Answer

Average total cost (ATC) is U-shaped because it initially decreases as output increases due to economies of scale and then increases due to diseconomies of scale. Marginal cost (MC) is not constant and can increase or decrease depending on the level of output. It is not always falling as it may increase as output increases due to diminishing returns. ATC does not always decline as it may increase due to increasing marginal costs outweighing the benefits of economies of scale.

Which of the Following Statements About Cost Is Correct