Discussion
When the marginal cost (MC) of a firm is rising, it will :
Answer: A
The key's answer is that a rising MC will pull the average cost (AC) up.
This rests on the relation between marginal and average values: when the marginal cost of an extra unit is above the average cost, adding that unit raises the average; when it is below, it lowers the average. As output expands, MC eventually rises and crosses AC at the minimum point of AC, after which the rising MC lies above AC and pulls it upwards, which is the textbook reading the key adopts.
Strictly, MC can be rising while still below AC, just before the minimum of AC, and there AC still falls; the question takes the stretch beyond the crossing point. The other options are wrong in any case: a rising MC never pushes AC down once it is above AC, it does not 'split' AC, and AC is never unaffected by MC.
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