Answer to Question #126394 in Microeconomics for Ayesha

Question

firm has a marginal cost of $10, an average total cost of $8, and an average variable cost of $6. Marginal cost is increasing with the quantity supplied. The firm operates in a perfectly competitive market where the price of each unit of output sold is $9. From this information we can infer that:

Answer 1

The marginal cost rises when there is an increase in output. Whenever there is a reduction in the marginal cost below the average total cost, the average total cost declines. When the marginal cost is bigger than the average total cost, there is a rise in the average total cost. Marginal cost increases in output bigger than a certain quantity due to diminishing returns. The average total cost increases as the quantity increases, and the important variable inputs demand increases, thus there is an increase in the cost of those inputs.