If marginal cost is less than average total cost, then:
A) average total cost is increasing.
B) average total cost is decreasing.
C) marginal cost is necessarily increasing.
D) marginal cost is necessarily decreasing.

Question

Quizplus · Accepted Answer

When marginal cost is less than average total cost, it pulls down the average total cost. This is because the marginal cost is the cost of producing one more unit, while the average total cost is the cost per unit of producing all units. When the marginal cost is less than the average total cost, it means that the additional unit is cheaper to produce than the average of all units already produced, which brings the average total cost down. Therefore, average total cost is decreasing.

If Marginal Cost Is Less Than Average Total Cost, Then