When SRMC is lower than SRAC, the average cost curve must be
A) horizontal
B) falling
C) rising

Question

Quizplus · Accepted Answer

When SRMC is lower than SRAC, that means that the marginal cost is lower than the average cost. This implies that producing one more unit of output is cheaper than producing the average unit of output. Therefore, as the firm increases its output, the average cost will fall (since the cheaper marginal cost will pull down the average cost). Consequently, the average cost curve must be falling in this situation.

When SRMC Is Lower Than SRAC, the Average Cost Curve