Which of the following must be true if average variable costs are decreasing?

• A. Marginal cost is greater than average variable cost.
• B. Total variable cost is constant.
• C. Marginal cost is less than average variable cost.
• D. Marginal cost equals average variable cost.

Answer: (C)

Verified step by step guidance

1. Recall the relationship between average variable cost (AVC) and marginal cost (MC): when AVC is decreasing, MC must be less than AVC.
2. Understand that marginal cost represents the cost of producing one additional unit, while average variable cost is the total variable cost divided by the quantity produced.
3. If MC is less than AVC, producing an additional unit lowers the average variable cost, causing AVC to decrease.
4. If MC were greater than AVC, producing an additional unit would increase AVC, so AVC would be rising, not decreasing.
5. If MC equals AVC, AVC is at its minimum point and neither increasing nor decreasing.