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    Marginal Cost

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    Carefully explain if the following statements are true, false, or uncertain.
    a. If average cost is increasing, marginal cost must be increasing.
    b. If there are diminishing returns, the marginal cost curve must be positively sloped.
    c. Marginal costs decrease as output increases because the firm can spread fixed costs over more units

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    Solution Preview

    Please see the attachment.

    a) If average cost is increasing,marginal cost must be increasing.

    Ans: The statement is true. Average can increase only if the marginal increases.
    Consider that the average is x for (n-1) units, x for n units and (x+1) for (n+1) units. Thus, the total for (n-1) units is (n-1)*x = nx -x, the total for n units is n*x and total for n+1 units is (n+1)*(x+1)= nx+n+x+1. Marginal for the nth unit is the difference in total for n units and (n-1) units and marginal for the (n+1)th unit is the ...

    Solution Summary

    The explanation of the following are discussed in the solution
    a. If average cost is increasing, marginal cost must be increasing.
    b. If there are diminishing returns, the marginal cost curve must be positively sloped.
    c. Marginal costs decrease as output increases because the firm can spread fixed costs over more units

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