If marginal cost is below average variable cost, it means that the cost of producing one more unit of a good or service is less than the average cost of producing all units up to that point. This can occur when a company has economies of scale, which means that the cost of producing each additional unit decreases as the company increases its production.
There are several reasons why marginal cost may be below average variable cost. One reason is that fixed costs, such as rent and salaries, are spread out over a larger number of units as production increases. This can lead to a decrease in the average variable cost per unit. Another reason is that as production increases, a company may be able to take advantage of specialized equipment or processes that allow it to produce goods more efficiently. This can also lead to a decrease in the average variable cost per unit.
When marginal cost is below average variable cost, it can be beneficial for a company to increase production. This is because the cost of producing each additional unit is less than the average cost of producing all units up to that point. As a result, the company can increase its profits by producing and selling more units.
However, it is important for a company to consider all of its costs, including fixed costs, when deciding whether to increase production. If fixed costs are high, a company may not be able to make a profit even if marginal cost is below average variable cost. In addition, a company should consider other factors, such as market demand and competition, when deciding whether to increase production.
In summary, if marginal cost is below average variable cost, it can be beneficial for a company to increase production in order to increase profits. However, it is important for the company to consider all of its costs and other factors when making this decision.
Average Variable Cost Formula
First, calculate the average variable cost for each output level. See the table for total cost. Once it reaches the minimum mark, it starts rising again. Use the following two statements to answer this question: I. If price exceeds average total cost, then a firm generates an economic profit, that is, above normal profit, by producing at the quantity that equates marginal revenue and marginal cost.
When marginal cost is below average variable cost, average variable cost must be a. at its maximum. b. rising c. falling. d. at its minimum.
As a result, demand for electricity sharply increased and the price of electricity rose sharply. Average total cost is increasing but average variable cost is decreasing B. Based on the information illustrated in this graph, which of the following is an accurate statement? C I and II are both true. When MC is more than AVC, AVC rises with increase in output. B I is false, and II is true. What happens if average total cost is greater than price? When marginal cost is below average variable cost, average variable cost must be a. Assume that your average grade in a course is 85.
Relationship Between Marginal Cost & Average Variable Cost
When MC is less than AVC? To maximize his profits in this competitive market, how many workers should he hire? Based on the information illustrated in this graph, which of the following is an accurate statement? Once the low point is reached, the AVC rises with rising output. Which piece of information would NOT be helpful in calculating the marginal cost of the 75th unit of output? Following the grade analogy, average cost will be decreasing in quantity produced when marginal cost is less than average cost and increasing in quantity when marginal cost is greater than average cost. Graph all three curves. Hence, the output at which the average variable cost is the minimum is six units. Which of the following is true regarding the relationship between returns to scale and economies of scope? MC is initially downward sloping in the region of increasing MR at low output levels B. Consider the following statements when answering this question.
