Table of contents

0. Basic Principles of Economics1h 5m
1. Reading and Understanding Graphs59m
2. Introductory Economic Models1h 10m
3. The Market Forces of Supply and Demand2h 26m
4. Elasticity2h 26m
5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
6. Introduction to Taxes and Subsidies1h 46m
7. Externalities1h 12m
8. The Types of Goods1h 13m
9. International Trade1h 16m
10. The Costs of Production2h 35m
11. Perfect Competition2h 23m
12. Monopoly2h 13m
13. Monopolistic Competition1h 9m
14. Oligopoly1h 26m
15. Markets for the Factors of Production1h 26m
16. Income Inequality and Poverty35m
17. Asymmetric Information, Voting, and Public Choice39m
18. Consumer Choice and Behavioral Economics1h 16m

10. The Costs of Production

The Relationship Between Average Cost and Marginal Cost

Microeconomics

10. The Costs of Production

The Relationship Between Average Cost and Marginal Cost

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Multiple Choice

A firm is currently producing 100 units with an average total cost of $44 and a marginal cost of $32. If it were to increase production to 101 units, which of the following must be true?

Average total cost would decrease.

Average total cost would increase.

Marginal cost would decrease.

Marginal cost would increase.

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Verified step by step guidance

Understand the relationship between average total cost (ATC) and marginal cost (MC). If MC is less than ATC, producing an additional unit will decrease the ATC.

Identify the given values: the current ATC is $44, and the MC for producing the 101st unit is $32.

Compare the marginal cost of the additional unit ($32) with the current average total cost ($44). Since $32 < $44, the marginal cost is less than the average total cost.

Apply the concept that when MC is less than ATC, producing more units will bring the ATC down. This is because the additional cost of producing one more unit is less than the average cost of all units produced so far.

Conclude that increasing production from 100 to 101 units will result in a decrease in the average total cost, as the marginal cost of the additional unit is lower than the current average total cost.