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Question
What will be the tendency of the average cost of a firm when MC < AC?
Short Answer
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Solution
- When Marginal Cost (MC) is less than Average Cost (AC), the Average Cost (AC) will fall.
- Because each additional unit costs less than the current average, it pulls the average down, just like scoring below your average reduces your overall average.
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Chapter 8: Cost and Revenue Analysis - TEST YOURSELF QUESTIONS [Page 161]
