Which statement about cost is correct?
A) Marginal cost is constant.
B) Marginal cost is always falling.
C) Average total cost is U-shaped.
D) Average total cost always declines.

Question

Quizplus · Accepted Answer

The U-shaped curve of average total cost is a fundamental concept in economics. At low levels of output, average total cost is high as fixed costs are spread over fewer units. At high levels of output, average total cost may increase due to diminishing marginal returns or increasing marginal costs. Therefore, average total cost is U-shaped. Marginal cost, however, can vary depending on the level of output and is not always constant or falling, so options A and B are incorrect. Option D is also incorrect as average total cost does not always decline; it is U-shaped.

Which Statement About Cost Is Correct