Suppose a firm increases output by one unit.Which of the following statements is true?
A)total cost will increase by an amount equal to average variable cost
B)total cost will increase by an amount equal to the marginal cost
C)variable cost will increase by an amount equal to marginal cost
D)average fixed cost will stay constant

Question

Quizplus · Accepted Answer

When a firm increases output by one unit, the cost of producing that unit is the marginal cost. Therefore, the total cost will increase by an amount equal to the marginal cost. Choice (A) is incorrect because total cost also includes fixed costs which do not change with a one-unit increase in output. Choice (C) is incorrect because while variable costs will increase with a one-unit increase in output, it is not necessarily equal to the marginal cost. Choice (D) is also incorrect because average fixed cost is calculated by dividing total fixed cost by output, so it would decrease with a one-unit increase in output.

Suppose a Firm Increases Output by One Unit