Question

As long as average cost curve is rising ______________.

• A. Marginal cost is more than average cost
• B. Marginal cost is less than average cost
• C. Marginal cost is equal to average cost
• D. Marginal cost has no relation with average cost

Answer 1

The correct option is A Marginal cost is more than average cost

$\Rightarrow$ Both AC and MC are derived from total cost (TC). AC refers to TC per unit of output and MC refers to addition to TC when one more unit of output is produced.

$\Rightarrow$ Both AC and MC curves are U-shaped due to the Law of Variable Proportions. The relationship between the two can be better illustrated through following schedule and diagram.

$1.$ When MC is less than AC, AC falls with increase in the output, i.e. till $3$ units of output.

$2.$ When MC is equal to AC, i.e. when MC and AC curves intersect each other at point A, AC is constant and at its minimum point.

$3.$ When MC is more than AC, AC rises with increase in output, i.e. from 5 units of output.

$\therefore$ As long as average cost curve is rising Marginal cost is more than average cost.