When the marginal cost curve lies below the average variable cost curve, what is happening to the average variable cost?
A) The average variable cost is zero.
B) The average variable cost is increasing.
C) The average variable cost is decreasing.
D) The average variable cost does not change.

Question

Quizplus · Accepted Answer

When the marginal cost curve lies below the average variable cost curve, it implies that the average variable cost is decreasing. This happens because the marginal cost curve intersects the average variable cost curve at a point where the latter is still falling. As such, the addition of another unit of production increases the output but reduces the average variable cost.

When the Marginal Cost Curve Lies Below the Average Variable