Question

6) If the average variable cost of producing 10 units is $18 and the average variable cost of producing 11 units is $20, we know that, between 10 and 11 units of output, A) marginal cost is increasing. B) average total cost is increasing. C) average fixed cost is increasing. D) total cost is either increasing or decreasing. E) none of the above

Answer 1

6.

Answer: A

Average variable cost (AVC) is increasing here by ($20 - $18 =) $2. It means the respective marginal cost (MC) curve already cuts the minimum of AVC and it tends to go upward – as AVC increases, MC also increases. This is the primary relation between AVC and MC.

Other options are not correct:

B) Average total cost may be increased or decreased, because it depends on both AVC and AFC. Since AFC is not known, it can’t be said specifically.

C) AFC is not known here.

D) Total cost must be increased, since AVC increases. Therefore, TC can’t be decreased.