Question

Which of the following sentence depicts the correct relationship between average cost and marginal cost?

• A. When average cost rises with an increase in output, marginal cost is less than the average cost.
• B. When average cost falls with an increase in output, marginal cost is less than the average cost.
• C. Marginal cost curve cuts the average cost curve at its maximum point.
• D. All of the above

Answer 1

The correct option is B When average cost falls with an increase in output, marginal cost is less than the average cost.

solution:

The relationship between the marginal cost and average cost is the same as that between any other marginal-average quantities. When marginal cost is less than average cost, average cost falls and when marginal cost is greater than average cost, average cost rises.

option c is not true because see figure it doesn't cut at its maximum point

hence the correct option : B