At its current level of output, a firm's average cost is $25 and its marginal cost is $20.If the firm increases output by one unit and marginal cost is $22, average cost will be
A)greater than $25.
B)equal to $25.
C)less than $25.
D)equal to marginal cost.

Question

Quizplus · Accepted Answer

If the marginal cost is less than the average cost, then increasing output will decrease the average cost. Therefore, if the marginal cost of the additional unit is $22 and the current average cost is $25, the average cost will decrease and be less than $25. Therefore, the best choice is C: less than $25.

At Its Current Level of Output, a Firm's Average Cost