Which of the following is true regarding the cost curves faced by a firm?

Question

Quizplus · Accepted Answer

When MC is greater than ATC, it means that each additional unit of output is adding more to the average total cost than the previous unit. This will cause the average total cost to rise. However, if the marginal cost of a unit of output is higher than the average variable cost, it means that variable costs are increasing at an increasing rate. This contributes to the average total cost increase. In the long run, a firm must earn enough revenue to cover all costs of production, including fixed costs. A higher average total cost would require a higher price to cover these costs.

Which of the Following Is True Regarding the Cost Curves