Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Average total cost will decrease
B
Average total cost will increase
C
Average total cost will remain unchanged
D
Average total cost will fluctuate randomly
Understanding the Answer
Let's break down why this is correct
Answer
When a firm experiences an increase in marginal cost, it means that the cost of producing one more unit of a product is rising. This can affect the average total cost, which is the total cost divided by the number of units produced. If the marginal cost increases, the average total cost is likely to rise as well, especially if the firm continues to produce more units. For example, if a bakery starts paying more for ingredients and labor to make additional cakes, the average cost per cake will increase as these higher costs are spread over all the cakes made. Therefore, even if demand stays the same, the rising marginal cost can lead to a higher average total cost for the firm.
Detailed Explanation
When marginal cost goes up, it means the cost of making one more item is higher. Other options are incorrect because Some might think that higher costs for each item would lower the average; It's a common mistake to think that average costs stay the same.
Key Concepts
Marginal Cost
Supply and Demand
Topic
Calculating Average Total Cost
Difficulty
medium level question
Cognitive Level
understand
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