A firm is producing 1,000 units at a total cost of $5,000. If it were to increase production to 1,001 units, its total cost would rise to $5,008. What does this information tell you about the firm? Select one: a. Marginal cost is $5, and average variable cost is $8. b. Marginal cost is $8, and average variable cost is $5. c. Marginal cost is $8, and average total cost is $5. d. Marginal cost is $5, and average total cost is $8.

c. Marginal cost is $8, and average total cost is $5.

Explanation:

Marginal cost of a firm is the cost difference in producing an additional unit of a firm's output. The extra amount result from the an extra unit of output produced. It is derived by calculating the difference between the total cost and dividing it by the difference in output i. e change in TC / change in output

In the question, The change in TC is calculated as $5008 - $5000 = $8 and the change in quantity is 1001 - 1000 = 1

Therefore 8 / 1 = 8 marginal cost is = $8

on the other hand, Average total cost is the cost per unit of output i. e the cost of a commodity out of all the products produced by a firm. it is calculated by dividing the total cost by the total number of output

In the question above, The total cost is $5,000 and the Total output is 1,000

$5,000 / 1000 = $ 5

similarly, when the total output increased to 1001 and the total cost rises to $5008 the Average cost still remains at$ 5

prove: 5008 / 1001 = 5.0002 which is approximately equal to 5.

therefore the correct answer is c. Marginal cost is $8, and average total cost is $5.