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 producing 1,500 units at a total cost of $15,000. If it were to increase production to 1,501 units, its total cost would rise to $15,012. Which of the following is true?

Marginal cost is $10 and average variable cost is $12

Marginal cost is $12 and average variable cost is $10

Marginal cost is $10 and average total cost is $12

Marginal cost is $12 and average total cost is $10

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Verified step by step guidance

First, understand the concept of marginal cost (MC). Marginal cost is the additional cost incurred by producing one more unit of a good or service. It can be calculated by taking the change in total cost divided by the change in quantity produced.

Calculate the marginal cost using the given data. The change in total cost when production increases from 1,500 to 1,501 units is $15,012 - $15,000 = $12. The change in quantity is 1 unit. Therefore, MC = $12 / 1 = $12.

Next, understand the concept of average total cost (ATC). Average total cost is the total cost divided by the quantity of output produced. It includes both fixed and variable costs.

Calculate the average total cost for producing 1,500 units. ATC = Total Cost / Quantity = $15,000 / 1,500 units.

Finally, compare the calculated marginal cost and average total cost with the options provided. The correct statement is: Marginal cost is $12 and average total cost is $10.