If marginal cost equals zero, the average cost remains unchanged.

Question: If marginal cost equals zero, the average cost remains unchanged.

False. If marginal cost equals zero, the average cost does not necessarily remain unchanged.

Marginal cost is the change in total cost associated with producing one additional unit of output. Average cost is the total cost divided by the number of units produced.

If marginal cost equals zero, it means that producing one additional unit of output does not incur any additional cost. However, this does not mean that the total cost remains the same. Total cost is the sum of all costs incurred in producing a certain quantity of output, including both fixed costs and variable costs. Fixed costs are costs that do not change with the level of output, while variable costs are costs that do vary with the level of output.

Even if marginal cost is zero, total cost will still increase as more units of output are produced, as long as there are variable costs involved. For example, a firm may have fixed costs associated with renting a factory building and purchasing equipment. However, the variable costs of producing each additional unit of output, such as the cost of labor and materials, may be very low. If the firm produces more output, the total variable costs will increase, even if the marginal cost is zero.

As a result, the average cost of production will also increase as the firm produces more output, even if the marginal cost is zero.

Here is an example:

Suppose a firm has a fixed cost of $100 and a variable cost of $1 per unit. The firm's total cost of producing 100 units is $200 (fixed cost of $100 + variable cost of $100). The firm's average cost of production is $2 per unit (total cost of $200 divided by the number of units produced, 100).

Suppose the firm produces one additional unit of output. The total variable cost will increase by $1, but the total fixed cost will remain the same. As a result, the total cost of production will increase by $1. The firm's average cost of production will also increase by $1, to $2.01 per unit.

Therefore, even if marginal cost is zero, the average cost of production does not necessarily remain unchanged.