Question

An increase in the cost of rental on the building in which a store operates will increase

both average fixed cost and average total cost.

only average total cost.

only marginal cost.

only average variable cost.

only average fixed cost.

Consider the following two statements:

I. If marginal cost is greater than average total cost,
average total cost must be rising.
II. If average total cost is greater than marginal cost,
marginal cost must be rising.

I is true; II is false.

There is insufficient information to tell whether the statements are true or false.

I is false; II is true.

Both statements are false.

Both statements are true.

Answer 1

Q1. Answer is Both average fixed and average total cost.

Explanation: As the cost of rental increases, it increases the total fixed cost and also total cost, resulting in the increase in Average fixed and average total cost with smae number of output.

Q2. Answer I is true and II is false.

Explanation: Increased marginal cost is the reason for the average total cost to rise.

However, the Average total cost is higher than marginal cost, it will not make the marginal cost to rise. That means, Average cost is basically dependent on marginal cost and not vice-versa.