When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC after the increase is

Question

When a firm increased its output by one unit, its AC rose from $45 to $50.                 This implies that its MC after the increase is

BlackTom AI · Accepted Answer

To understand what the change in average cost (AC) implies about marginal cost (MC), start from the basic relationship between AC and MC. When a firm increases output by one unit and its AC rises, this indicates that the extra unit is more costly than the previous average cost.

Option 1: greater than $50. Since AC rose from 45 to 50 after the output increase, the new average cost is 50. If MC were less than or equal to 50, the AC would not be rising at this point; it would stay the same or fall. Therefore, MC must be greater than 50 to push the average cost upward to 50.

Option 2: $5. This would be far below the new average cost and does not align with the logic that MC drives the direction of AC when output changes. A marginal cost of $5 would typically pull AC down, not push it up.

Option 3: lower than $45. If MC were below 45, AC would fall when increasing output, not rise to 50. This option contradicts the observed increase in AC.

Option 4: lower than $50. If MC were between 45 and 50, or below 50, AC would either fall or rise by a smaller amount, but not necessarily move up to 50. The essential point is that for AC to increase to 50, MC must exceed the new AC value, i.e., be greater than 50.

In summary, the fact that AC increased to 50 after a one-unit increase in output implies MC exceeded 50, while the other options fail to reflect this cost–cost relationship and misinterpret how MC interacts with AC during an output change.

When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC after the increase is

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When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC after the increase is

View Explanation

Log in for full answers

Similar Questions

An assumption of the BECOMP model is:

When the average total cost curve is downward sloping, what must be true about the marginal cost curve?

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