Your Name Your Course Your Professor May 27 , 2007 10 . If average variable cost is increasing , marginal cost must also be decreasing . False . Average variable cost is a function of output , which can be expressed as TVC /Output AVC , or cost divided by output is equal to average variable cost . In an efficient manufacturing firm , the AVC is fixed at its lowest possible point , giving the firm the maximum possible number of units it can produce at the lowest cost . Before that point , production can be increased while still bringing marginal costs down after that point ,there is no potential for decreasing the marginal cost without long-run investment in capital . If AVC is increasing , it means that marginal cost is also increasing , because the AVC has passed its lowest point ,meaning that each new unit being produced is more expensive – in short ,the firm is producing too much and must either pull back production to return to the point of lowest AVC or make long-run investments to increase capacity .11 . If marginal cost is above average cost , average cost must be rising . True . In a situation where marginal cost is above average cost , there are economies of scale at work specifically , decreasing marginal productivity , which indicates that each individual unit is being produced at a price higher than the previous unit . This means that the marginal cost will at some point end up above the average cost .12 . If average cost is above marginal cost , marginal cost must be rising . False . This is another example of economies of scale in this case ,increasing returns to scale , which mean that at the current level of production being examined , each unit is being produced for less than the cost of the previous unit . At some point , the average cost will be above the marginal cost . However , this situation will not continue forever -at the point of diminishing marginal productivity , the marginal cost of each additional unit will increase due to the cost of increased labor demands .13 . If average cost is above marginal cost , average cost must be falling . True . Increasing returns to scale (a situation in which average cost is above marginal cost due to economies of scale ) lead to a decrease in average cost , because average cost is equal to AC TC /Q , or Average Cost In a situation where marginal cost is below average cost , this will bring the average cost down because the marginal cost is falling while the number of units is increasing . Fixed costs do not play a part in this equation because a firm ‘s fixed costs do not change regardless of production .14 . If marginal cost is below average cost , marginal cost must be rising . False . If marginal cost is below average cost , this must be due to increasing returns to scale , with each individual unit costing less than the unit before to produce . In this situation , marginal cost is decreasing rather than increasing . In this instance , the decrease in marginal cost will slowly…