Question

suppose that when output is 20, marginal cost is $20, and average total cost is $30. then which of the following is most likely to be true?
a. average total cost is declining.
b. average total cost is rising.
c. average total cost is less than average fixed cost.
d. average total cost is constant.

Explanation:

The key relationship is: when marginal cost (MC) is less than average total cost (ATC), adding the next unit (with lower cost than the average) pulls the average total cost down. Here, MC = $20 and ATC = $30, so MC < ATC. Option c is impossible because ATC = average fixed cost + average variable cost, so ATC must be greater than average fixed cost. If MC=ATC, ATC is constant; if MC>ATC, ATC rises.

Answer:

a. Average total cost is declining.