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Wajid khan
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Asked: 2023-05-30T23:09:13+05:00 In:

Which of the following statements is correct?

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a) When marginal product rises, marginal cost must also rise.
b) Marginal cost measures the cost per unit of output associated with any level of production.
c) Average total cost is the difference between average variable cost and average fixed cost.
d) Marginal cost is the price or cost of an extra variable input (for example, an additional worker or machine) divided by its marginal product.

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1 Answer

  1. Enlightened

    The correct statement is:

    b) Marginal cost measures the cost per unit of output associated with any level of production.

    Explanation:

    • – Statement a) is incorrect. Marginal product refers to the additional output generated by employing one more unit of a variable input (e.g., labor or capital). It does not necessarily imply that marginal cost must rise. Marginal cost depends on various factors, including the prices of inputs and the production function.
    • – Statement c) is incorrect. Average total cost (ATC) is the total cost per unit of output. It is calculated by dividing the sum of average variable cost (AVC) and average fixed cost (AFC) by the quantity produced. In other words, ATC = (AFC + AVC)/quantity. It does not represent the difference between AVC and AFC.
    • – Statement d) is incorrect. Marginal cost is the additional cost incurred by producing one more unit of output. It is calculated by dividing the change in total cost by the change in quantity. It is not directly related to the price or cost of an extra variable input divided by its marginal product.

    Therefore, the correct statement is b) Marginal cost measures the cost per unit of output associated with any level of production.

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