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21 August, 17:03

Assume that the marginal cost (MC) of production is increasingincreasing. Can you determine whether the average variable cost (AVC) is increasing or decreasing? Explain.

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  1. 21 August, 18:29
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    YES - When marginal cost (MC) of production is increasing, the average variable cost (AVC) is increasing.

    Explanation:

    Marginal cost (MC) is the cost of producing an extra unit of output while Average variable cost (AVC) is the cost per unit of output produced.

    When MC is below AVC, MC pulls the average down. This means that when MC is falling, AVC is falling

    When MC is above AVC, MC is pushing the average up; therefore when MC is rising, AVC is rising.

    The conclusion is that MC and AVC have a direct relationship and a rise in one will cause a rise in the other, therefore when the marginal cost (MC) of production is increasing, the average variable cost (AVC) is increasing.
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