Based on the chart, which statement best describes the behavior of marginal cost as output increases?

• A. Marginal cost continuously decreases as output increases.
• B. Marginal cost is always higher than average total cost.
• C. Marginal cost remains constant regardless of output.
• D. Marginal cost initially decreases, then increases as output rises.

Answer: (D)

Verified step by step guidance

1. Understand the concept of marginal cost (MC): it is the additional cost incurred by producing one more unit of output.
2. Recall that marginal cost is related to average total cost (ATC) and typically influences its shape; when MC is below ATC, ATC falls, and when MC is above ATC, ATC rises.
3. Analyze the behavior of MC as output increases: initially, due to increasing returns or efficiencies, MC tends to decrease; after a certain point, diminishing returns set in, causing MC to increase.
4. Use the chart to observe the pattern of MC values at different output levels, noting where MC decreases and where it starts to rise.
5. Conclude that the best description is that marginal cost initially decreases and then increases as output rises, reflecting the typical U-shaped cost curve in microeconomics.