Regarding a producer's cost structure:
A) marginal cost begins to rise at a lower level of output than average cost.
B) total fixed costs increase continuously as more units are produced.
C) average cost is the extra cost of producing one more unit.
D) average costs usually drop for awhile and then start to rise when the economies of scale "run out."
E) Both A and D are true.

Question

Quizplus · Accepted Answer

Marginal cost is the cost of producing one additional unit, and it typically rises as more units are produced due to diminishing returns. Average cost, which is total cost divided by the quantity produced, tends to decrease as production increases until economies of scale have been exhausted, at which point average cost begins to rise. Therefore, both option A and D are correct. Option B is incorrect because fixed costs do not increase as more units are produced, as they represent costs that do not vary with production levels. Option C is incorrect because the definition does not match that of average cost.

Regarding a Producer's Cost Structure