Question

When marginal costs are below average total costs, a. average fixed costs are rising. b. average total costs are falling. c. average total costs are rising. d. average total costs are minimized.

Answer 1

The correct answer is option b. average total costs are falling.

Step-by-step explanation:

When marginal cost is below average total cost, average total cost will be falling whereas the average cost will be rising when the marginal cost is above average total cost.

A firm is highly productive and efficient when the average total cost is the lowest. At this point, the average total cost is also equal to the marginal cost i.e.

Average Total Cost (ATC) = Marginal Cost (MC).