The correct answer is B. Less than average cost.
When average cost falls, as a result of increase in output, the marginal cost is less than average cost. This is because the marginal cost is the additional cost incurred in producing one more unit of output, while the average cost is the total cost divided by the number of units produced. When output increases, the average cost falls because the fixed costs are spread over a larger number of units. The marginal cost, on the other hand, does not change as much, because the additional cost of producing one more unit is not affected by the number of units already produced.
For example, let’s say a company produces 10 units of a product at a total cost of $100. The average cost per unit is therefore $10. If the company produces 11 units, the total cost will be $105. The average cost per unit will now be $9.55. The marginal cost of producing the 11th unit is $5, which is less than the average cost of $9.55.
This relationship between marginal cost and average cost is important because it can help businesses make decisions about how much to produce. If the marginal cost is less than the average cost, then the company can increase production and make more money. However, if the marginal cost is greater than the average cost, then the company should decrease production.
In conclusion, when average cost falls, as a result of increase in output, the marginal cost is less than average cost. This is because the marginal cost is the additional cost incurred in producing one more unit of output, while the average cost is the total cost divided by the number of units produced. When output increases, the average cost falls because the fixed costs are spread over a larger number of units. The marginal cost, on the other hand, does not change as much, because the additional cost of producing one more unit is not affected by the number of units already produced.