When the output elasticity of total cost is less than one,
A)Marginal cost is less than average cost and average cost decreases as Q increases.
B)Marginal cost is less than average cost and average cost increases as Q increases.
C)Marginal cost is greater than average cost and average cost decreases as Q increases.
D)Marginal cost is greater than average cost and average cost increases as Q increases.

Question

Quizplus · Accepted Answer

When the output elasticity of total cost is less than one, it indicates economies of scale, meaning as production (Q) increases, the average cost decreases. Marginal cost being less than average cost further supports this, as it suggests the cost of producing one more unit is lower than the average, thus pulling the average cost down as production increases.

When the Output Elasticity of Total Cost Is Less Than