McqMate
| Q. |
When average cost production (AC) falls, marginal cost of production must be - |
| A. | rising |
| B. | Falling |
| C. | Greater than the average cost |
| D. | Less than the average cost |
| Answer» D. Less than the average cost | |
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Explanation: Average cost is the total cost per unit of output. Marginal cost, on the other hand, is the addition to the total cost by producing one more units of output. Economies of scale are said to exist if an additional unit of output can he produced for less than the average of all previous units—that is, if long-run marginal cost is below long-run average cost, so the latter is falling. Conversely, there may be levels of production where marginal cost is higher than average cost, and average cost is an increasing function of output. |
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