A firm estimates that when output is 10, its total costs are $900. It also finds that when output is 11, its total costs are $920. The marginal cost of the eleventh unit of output is:
A) $20 and the minimum point of the average total cost occurs at an output level less than 11.
B) $20 and the minimum point of the average total cost occurs at an output level greater than 11.
C) $90 and the average total cost is minimized.
D) $90 and the minimum point of the average total cost occurs at an output level greater than 11.

Question

Quizplus · Accepted Answer

The marginal cost is equal to the change in total cost divided by the change in output, which in this case is ($920-$900)/(11-10) = $20.

To determine the minimum point of the average total cost, we would need information on the firm's fixed costs. Therefore, we cannot determine the answer to choices A, C, or D.

However, we can make an educated guess that the minimum point of the average total cost would occur at an output level greater than 11, based on the fact that the marginal cost is constant and increasing. This suggests that the average total cost curve is U-shaped, and therefore the minimum point occurs where the marginal cost curve intersects the average total cost curve from below, which would be at an output level greater than 11.

A Firm Estimates That When Output Is 10, Its Total