Question

True/False/Explain. If the Marginal Cost curve is upward-sloping (MC is increasing) for a certain level of output, then the Average Variable Cost curve is also upward-sloping (AVC is increasing) for this level of output.

Answer 1

True.
The average cost curve will shows an upward sloping at increasing level of output. After a point of time, the average cost will decline with respect to an increasing level of output. Average cost is the cost of producing single unit of output. And marginal cost is the cost incurred to produce an extra unit of output. The slope of marginal cost curve is upward sloping. This marginal cost will not reach zero and negative. On the other hand, the average cost will reach zero, where the marginal cost reach its higher level. The decline in average cost is greater than the fall in marginal cost. After reach a certain point of time, this average cost will decline because of the law of diminishing marginal returns.