When marginal cost curve is below an average cost curve,average cost is:
A) increasing with output.
B) declining with output.
C) not varying with output.
D) None of the preceding statements is correct.

Question

Quizplus · Accepted Answer

When the marginal cost curve is below the average cost curve, it means that the average cost is decreasing with output. This is because the marginal cost is the cost of producing an additional unit of output, which is often lower than the cost of the previous unit. As more units are produced, the average cost decreases because the fixed costs are spread over a larger output, lowering the overall cost per unit. Therefore, the best choice is B, which states that average cost is declining with output.

When Marginal Cost Curve Is Below an Average Cost Curve,average