Question

If the MC is greater than the ATC, and the MC is increasing, what will happen...

If the MC is greater than the ATC, and the MC is increasing, what will happen to the ATC and the AVC? If the MC is less than the ATC and the MC is decreasing, what will happen to the ATC and AVC? Explain.

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Answer #1

1> If the MC is greater than the ATC, and the MC is increasing, then ATC and AVC will both increase.

2>  If the MC is less than the ATC and the MC is decreasing, ATC will decrease and we can not say anything about AVC.

REASON

If MC is greater than ATC, one more output will increase the average price, since the AFC is always decreasing AVC must increase. Now,if MC is lower than ATC, the average price will decline but we can not say anything about AVC as aFC always declines.

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