Which of the following is true?
A)When average cost is decreasing,total cost must also be decreasing.
B)When average cost is decreasing,average product of labor must be decreasing.
C)When average cost is decreasing,marginal cost must be less than average cost.
D)When average cost is decreasing,output must be decreasing.

Question

Quizplus · Accepted Answer

When average cost is decreasing, it means that the firm is experiencing economies of scale, i.e. producing more output at a lower cost per unit. This implies that the marginal cost (cost of producing one additional unit) must be less than the average cost (total cost divided by output), since the additional unit is being produced at a lower cost than previous units. Therefore, option C is the correct answer. Options A and D are incorrect because decreasing average cost implies lower total cost and higher output, respectively. Option B is incorrect because there is no necessary relationship between average cost and average product of labor.

Which of the Following Is True