19, Suppose you had a situation where marginal cost was an upward sloping line.

Question

19, Suppose you had a situation where marginal cost was an upward sloping line. If for the quantity of 10 units, marginal cost is lower than average total cost, which of the following is true? a. The slope of average total cost would be negative at that point (i.e. sloped downward). b. The slope of average total cost would be zero at that point (i.e. horizontal). c. The slope of average total cost would be positive at that point (i.e. sloped upward). d. The slope of average total cost would be infinite at that point (i.e. vertical)

Explanation / Answer

The correct answer to this question is "A".

the slope of the average cost will be negative and downward sloping. This happens in a monopoly firm which produces at the point where its marginal cost curve meets its marginal revenue curve. At the point, its average total cost curve is still downward sloping.

At the point where the ATC is horizontal the output and the marginal cost will be same as it happens in case of perfect competition.

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