If a business's average total cost is decreasing as output increases, what can be said about its marginal cost?

• A. Marginal cost is equal to average total cost.
• B. Marginal cost is greater than average total cost.
• C. Marginal cost is less than average total cost.
• D. Marginal cost is unrelated to average total cost.

Answer: (C)

Verified step by step guidance

1. Recall the relationship between average total cost (ATC) and marginal cost (MC): when ATC is decreasing, MC must be less than ATC.
2. Understand that marginal cost represents the cost of producing one additional unit of output, while average total cost is the total cost divided by the quantity produced.
3. When MC is less than ATC, producing an additional unit lowers the average total cost, causing the ATC curve to slope downward.
4. Conversely, if MC were greater than ATC, producing an additional unit would increase the average total cost, making the ATC curve slope upward.
5. Therefore, if the business's average total cost is decreasing as output increases, it implies that marginal cost is less than average total cost.