Question

When producing its 5th unit a firm's total variable costs increased from 300 to 340. If a firm is facing increasing marginal returns, which answer could be the total variable cost of producing 6 units?

Group of answer choices

320

400

360

380

Answer 1

Hwre, option C is correct that is 360.

Because, on producing 5th unit, the marginal cost is 340 minus 300 equals to 40.

And it is given that there is increasing marginal returns and hence there will be decreasing marginal cost. Because there exists inverse relation between marginal product and marginal cost.

So marginal cost for producing 6th unit will be less than 40.

So, the only option which fits here is 360. All other are irrelevant because in all other MC is either 40 or greater than 40 which is not possible.

So, option C .