You observe that at your current production of lunch boxes t

You observe that at your current production of lunch boxes, the average total cost of producing lunch boxes is $5 and the marginal cost of producing lunch boxes is $2. What should always happen if you increase lunch box production?

Marginal cost will rise

Marginal cost will fall

Average total cost will rise

Average total cost will fall

Solution

Average total cost will fall

Rate Curves
The quick-run marginal price (MC) curve will to start with decline after which will go up at some factor, and will intersect the natural total fee and typical variable fee curves at their minimum points.

The ordinary variable rate (AVC) curve will go down (however will not be as steep as the marginal price), after which go up. This is not going to go up as fast as the marginal price curve.

The ordinary constant cost (AFC) curve will decline as further items are produced, and continue to decline.

The common complete price (ATC) curve at first will decline as constant charges are spread over a better number of models, however will go up as marginal charges expand as a result of the law of diminishing returns.
Diminishing Returns and Diminishing Marginal fabricated from Capital
The legislation of diminishing returns states that as one style of production enter is added, with all different forms of enter last the equal, at some factor construction will develop at a diminishing cost.

There could also be phases of input where increasing inputs causes creation to move up at an increasing expense. Nevertheless, in keeping with the legislation of diminishing returns, at some point construction will go up at a decreasing price.

The marginal product of capital is the develop in complete output associated with an increase in capital, even as preserving the number of labor constant. Capital is also field to the law of diminishing returns.

Economies of Scale
Economies of scale mean that goods can also be produced at a shrink fee per good, as the range produced raises. Gigantic-scale factory operations can permit the most effective specialization of machinery and labor. Usual constant charges will decline as costs such as advertising can also be unfold throughout more and more units.
Diseconomies of Scale
Diseconomies of scale arise when per unit charges go up as output is extended. A traditional purpose given is official inefficiencies - extra awareness may accept to administrative principles versus innovation. Worker motivation can be more intricate as the number of employees raises.

When economies of scale arise, the long-run normal complete fee (LRAC) curve shall be declining; with diseconomies of scale, the LRAC curve will probably be rising.