If the 15th Unit of Output Has a Marginal Cost

question 292

Multiple Choice

If the 15th unit of output has a marginal cost of $29.50 and the average cost of producing 14 units of output is $30.23, what will happen to the average cost of production if the 15th unit is produced?

• A)Average cost increases as more is produced.
• B)Average cost will fall.
• C)Average cost could increase or decrease depending on what happens to variable cost.
• D)Average cost could increase or decrease depending on what happens to fixed cost.

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Definitions:

Contribution Margin

The difference between sales revenue and variable costs of a product, indicating how much contributes towards covering fixed costs and earning profit.

Fixed Costs

Expenses that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.

Marginal Costs

The additional cost incurred from producing one additional unit of a product or service.

Break-even Quantity

The number of units that need to be sold for a business to cover its production costs, resulting in zero profit or loss.