Question

Kaile's Cakes produces 10 cakes a day. The MC of the 10th cake is $24 while the ATC of 10 cakes is $6. FC are $9. What is the ATC of 9 cakes?

$3

$36

$4

$3.60

According to our model of a firm:

MC falls as output increases to a certain level then begins to rise as the marginal product of labor hits zero

MC rises as output increases to a certain level then begins to decline as the marginal product of labor hits zero

MC falls as output increases to a certain level then begins to rise as average fixed costs fall below AVC

MC falls as output increases to a certain level then begins to rise as the marginal product of labor diminishes

Answer 1

In the initial staeges of production the marginal product of labor rises. That is it adds greater than it costs. Thus the marginal cost of the production falls. As the marginal product reaches a maximum the marginal cost curve hits its lowest point. After than MP began to fall. That is it adds lesser than it marginally costs. Thus MC began to rise as MP falls.

Therefore, the correct option is: MC falls as output increases to a certain level then begins to rise as the marginal product of labor diminishes