Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 13 - Part V - The Costs of Production - Quick Check Multiple Choice - Page 276: 4

Answer

c. average total cost would decrease.

Work Step by Step

Original quantity = 20 New quantity = 21 Therefore, we see one additional unit of output has been added to the total quantity. Original Average Total Cost (ATC) = 25 dollars. Original Marginal Cost (MC) = 15 dollars. What can we predict? Well, we know that whenever the MC is less that the ATC, the ATC is falling; and whenever the MC is greater than ATC, the ATC is rising. Here, MC > ATC; ie 15 > 25. Hence, we can predict that the ATC will fall.
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