Assume there is a range of output over which there are gains from specialization and the division of labor.

What must be true if average variable costs $(A V C)$ are increasing?
Choose 1 answer:
(A) Average total costs $(A T C)$ must be increasing.
(B) Marginal costs $(M C)$ must be greater than $A V C$.
(C) Marginal costs $(M C)$ equals average total costs $(A T C)$.
(D) As the amount of output increases, average total cost $(A T C)$ and $A V C$ get farther apart.
(E) Marginal costs $(M C)$ must be decreasing.

Question

Assume there is a range of output over which there are gains from specialization and the division of labor.

What must be true if average variable costs $(A V C)$ are increasing?
Choose 1 answer:
(A) Average total costs $(A T C)$ must be increasing.
(B) Marginal costs $(M C)$ must be greater than $A V C$.
(C) Marginal costs $(M C)$ equals average total costs $(A T C)$.
(D) As the amount of output increases, average total cost $(A T C)$ and $A V C$ get farther apart.
(E) Marginal costs $(M C)$ must be decreasing.

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of AVC: Average Variable Cost (AVC) is the variable cost per unit of output. ‖‖ b ⋮ Relationship between AVC and MC: When AVC is increasing, it implies that the Marginal Cost (MC) is greater than the AVC. This is because the MC curve intersects the AVC curve at its minimum point. ‖ ∻Answer∻ ⚹ B: Marginal costs (MC) must be greater than AVC ⚹ ∻Key Concept∻ ⚹ Relationship between AVC and MC ⚹ ∻Explanation∻ ⚹ When AVC is increasing, it means that the cost of producing an additional unit (MC) is higher than the average variable cost, causing the AVC to rise. ⚹◊What impact does an increase in average variable costs have on a firm's production decisions and cost structure in the short run?⍭ Generate me a similar question◊

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