If marginal cost exceeds average total cost in the short run, which of the following is likely to be true?

• A. Average total cost is decreasing.
• B. Average total cost is increasing.
• C. Average total cost remains constant.
• D. Marginal cost equals average total cost.

Answer: (B)

Verified step by step guidance

1. Recall the relationship between marginal cost (MC) and average total cost (ATC): when MC is less than ATC, ATC is decreasing; when MC is greater than ATC, ATC is increasing; and when MC equals ATC, ATC is constant.
2. Understand that marginal cost represents the cost of producing one additional unit, while average total cost is the total cost divided by the quantity produced.
3. Analyze the condition given: MC exceeds ATC. This means the cost of producing an additional unit is higher than the average cost of all units produced so far.
4. Since the additional unit costs more than the average, producing it will pull the average total cost upward, causing ATC to increase.
5. Therefore, the correct conclusion is that average total cost is increasing when marginal cost exceeds average total cost.