Question

All of the following statements are true about marginal cost except I. marginal cost increases as production expands. II. when marginal cost is below average cost, average cost is falling. III. when marginal cost is above average cost, average cost is constant. IV. when marginal cost meets the average total cost, the average total cost is at its minimum point.

Answer 1

Answer:

III. when marginal cost is above average cost, average cost is constant.

Explanation:

Marginal Cost (MC) is the addition to total cost , when an additional variable factor is employed. MC = TCn - TCn-1

Average Total Cost AC is the Total (Fixed &Variable Cost) per unit variable factor employed. AC = TC / Q

MC AC relationship : MC > AC - AC rise ; MC < AC - AC fall ; MC = AC - AC minimum. '3rd' is opposite to the 1st underlined MC AC relationship.

2nd & 4th are other right components of MC AC relationship.  MC < AC - AC fall ; MC = AC - AC minimum (MC cuts AC at its minimum)

1st is also correct as when more variable factors are employed - total cost first increases at a decreasing rate (MC falls) & then it increases at an increasing rate (MC rises).  MC curve cuts AC curve at its minimum (MC = AC - AC minimum)