When marginal cost is less than average variable cost,average variable cost is falling.
Statement II: As output rises,average fixed cost declines.

Question

Quizplus · Accepted Answer

Statement I is true as marginal cost is the additional cost of producing one more unit of output and when it is less than the average variable cost, it means that the cost of producing one more unit is less than the average cost of producing all the units. This can only happen when the average variable cost is falling.
Statement II is also true as average fixed cost is the fixed cost per unit of output produced. As output increases, the fixed cost is spread over more units, hence leading to a decline in average fixed cost.

When Marginal Cost Is Less Than Average Variable Cost,average Variable