Discussion
What happens to marginal cost when average cost increases
Answer: B
Correct answer: Marginal cost is above average cost
The relation follows from the arithmetic of averages. An average rises only when the next value added exceeds it, so if average cost is increasing the marginal cost must lie above it.
The same logic gives the whole picture: where average cost is falling, marginal cost lies below it, and the two are equal exactly at the minimum of the average cost curve. That is why the marginal cost curve always cuts the average cost curve at its lowest point - not as a special property of costs, but as a necessary feature of any average and its margin.
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