In the short run, if average total cost is increasing as output rises, then
A) marginal cost must be below average total cost.
B) average total cost is no longer equal to the sum of average variable cost and average fixed cost.
C) average variable cost must be increasing.
D) average fixed costs must be increasing.
E) total fixed costs must be increasing.

Question

Quizplus · Accepted Answer

If average total cost is increasing as output rises, it means that the cost of producing each additional unit is rising. This suggests that the firm may be experiencing diminishing marginal returns to its inputs. Hence, average variable cost (the variable cost per unit) must be increasing as the firm is likely hiring more variable inputs such as labor to produce additional units.

In the Short Run, If Average Total Cost Is Increasing