   Chapter 13, Problem 4CQQ

Chapter
Section
Textbook Problem

A firm is producing 20 units with an average total cost of \$25 and a marginal cost of \$15. If it were to increase production to 21 units, which of the following must occur?a. Marginal cost would decrease.b. Marginal cost would increase.c. Average total cost would decrease.d. Average total cost would increase.

To determine
An average total cost will increase or decrease.

Explanation

Option (c):

When the firm is producing 20 units, the average total cost is \$25 and the marginal cost is \$15. In this, if the firm’s production increases to 21, then the average total cost will decrease. Thus, option ‘c’ is correct.

Option (a):

Marginal cost will not decrease when marginal cost is \$15 and if the firm increases its production from 20 to 21 units. Thus, option ‘a’ is incorrect...

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