Question

When average cost is above the average variable cost, which of these situations are possible?

• A. Average variable cost must be rising.
• B. Average fixed cost must be rising
• C. Average fixed cost must be falling rapidly
• D. Total cost must remain same

Answer 1

The correct option is A Average variable cost must be rising.

solution:

When marginal cost is greater than average variable or average total cost, AVC or ATC must be increasing. Therefore, the only possible point at which marginal cost equals average variable or average total cost is the minimum point.

hence the correct option:A