You observe that at your current production of lunch boxes, the average total cost of producing lunch boxes is $5 and the marginal cost of producing lunch boxes is $2. What should always happen if you increase lunch box production?
A) Marginal cost will rise.
B) Marginal cost will fall.
C) Average total cost will rise.
D) Average total cost will fall.

Question

Quizplus · Accepted Answer

When the marginal cost of producing an additional unit is less than the average total cost, increasing production will decrease the average total cost. This is because the lower cost of the additional units brings down the overall average cost.

You Observe That at Your Current Production of Lunch Boxes