When average cost is declining as ouput increases, marginal cost must be: a. declining b. above average cost c. below average cost d. rising The answer is B but I think it is C according to the cost curves of a competitive firm. Any suggestions? Solution The Correct option is C that when the Average Costs declines the Margin Costs is also below the average cost, as the marginal cost is the cost which is incurred by the producing one additional unit while on the other hand the average cost is the computed by dividing the total costs with the units produced. Hence since marginal costs shall be taking into consideration only the variable costs and the cost per unit shall include the fixed costs also, hence the marginal costs shall be below the average cost, hence option C is correct. .

1. When average cost is declining as ouput increases, marginal cost must be:
a. declining
b. above average cost
c. below average cost
d. rising
The answer is B but I think it is C according to the cost curves of a competitive firm.
Any suggestions?
Solution
The Correct option is C that when the Average Costs declines the Margin Costs is also below the
average cost, as the marginal cost is the cost which is incurred by the producing one additional
unit while on the other hand the average cost is the computed by dividing the total costs with the
units produced.
Hence since marginal costs shall be taking into consideration only the variable costs and the cost
per unit shall include the fixed costs also, hence the marginal costs shall be below the average
cost, hence option C is correct.