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If a firm’s average variable cost curve is rising, its marginal cost curve must be:
- a)Constant.
- b)Above the total cost curve.
- c)Above the average variable cost curve.
- d)All of the above.
Correct answer is option 'C'. Can you explain this answer?
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Most Upvoted Answer
If a firm’s average variable cost curve is rising, its marginal ...
Explanation:
When the average variable cost curve (AVC) is rising, it indicates that the additional cost of producing one more unit of output is increasing. This means that the marginal cost (MC) curve must be above the AVC curve.
Why is the Marginal Cost Curve above the AVC Curve?
There are a few reasons why the MC curve must be above the AVC curve when the AVC curve is rising:
1. Law of Diminishing Marginal Returns: The law of diminishing marginal returns states that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease. This means that the additional cost of producing one more unit of output will increase, leading to a rising AVC curve.
2. Relationship between AVC and MC: The AVC curve is derived from the total variable cost (TVC) curve, which shows the total cost of producing each level of output. The AVC curve is the TVC curve divided by the level of output. The MC curve, on the other hand, shows the additional cost of producing one more unit of output. Since the AVC curve is derived from the TVC curve, it follows that the MC curve must intersect the AVC curve at its lowest point (where the AVC curve is at its minimum).
3. Relationship between MC and Total Cost: The MC curve is also related to the total cost (TC) curve, which shows the total cost of producing each level of output (including both fixed and variable costs). The MC curve intersects the TC curve at its minimum point, which is also the point where the AVC curve is at its minimum.
Conclusion:
Therefore, when the AVC curve is rising, it indicates that the additional cost of producing one more unit of output is increasing. This means that the MC curve must be above the AVC curve.
When the average variable cost curve (AVC) is rising, it indicates that the additional cost of producing one more unit of output is increasing. This means that the marginal cost (MC) curve must be above the AVC curve.
Why is the Marginal Cost Curve above the AVC Curve?
There are a few reasons why the MC curve must be above the AVC curve when the AVC curve is rising:
1. Law of Diminishing Marginal Returns: The law of diminishing marginal returns states that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease. This means that the additional cost of producing one more unit of output will increase, leading to a rising AVC curve.
2. Relationship between AVC and MC: The AVC curve is derived from the total variable cost (TVC) curve, which shows the total cost of producing each level of output. The AVC curve is the TVC curve divided by the level of output. The MC curve, on the other hand, shows the additional cost of producing one more unit of output. Since the AVC curve is derived from the TVC curve, it follows that the MC curve must intersect the AVC curve at its lowest point (where the AVC curve is at its minimum).
3. Relationship between MC and Total Cost: The MC curve is also related to the total cost (TC) curve, which shows the total cost of producing each level of output (including both fixed and variable costs). The MC curve intersects the TC curve at its minimum point, which is also the point where the AVC curve is at its minimum.
Conclusion:
Therefore, when the AVC curve is rising, it indicates that the additional cost of producing one more unit of output is increasing. This means that the MC curve must be above the AVC curve.
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If a firm’s average variable cost curve is rising, its marginal ...
Marginal cost falls or rises more than AVC
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If a firm’s average variable cost curve is rising, its marginal cost curve must be:a)Constant.b)Above the total cost curve.c)Above the average variable cost curve.d)All of the above.Correct answer is option 'C'. Can you explain this answer?
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