Skip to content

CMA Foundation · Fundamentals of Business Economics and Management · Cost of Production

Mehta Textiles finds that at its current output, average total cost is falling as production rises. Which statement about marginal cost (MC) at this output must be true?

Marginal cost must be below average total cost. An average declines only when each extra unit adds less than the existing average, which drags the average down. When marginal cost equals average cost, the average is at its minimum, and above it the average rises.

  1. AMC is equal to average total cost
  2. BMC is below average total costCorrect
  3. CMC is above average total cost
  4. DMC is equal to average fixed cost

Explanation

Average falls only when the additional unit costs less than the current average, pulling it down. So MC lies below ATC. If MC were equal, ATC would be at its minimum, and if above, ATC would rise.

Did you get it right without looking?

One question tells you little. A timed set on Cost of Production shows your real accuracy, how long you take and where you lose marks.

Practise Cost of ProductionFree diagnostic mock

More Cost of Production questions