Read the passage carefully and answer the questions based on the passage:
Long Run Costs
In the long run, all inputs are variable. There are no fixed costs. The total cost and the total variable cost therefore, coincide in the long run. Long run marginal cost is the change in total cost per unit of change in output. Increasing returns to scale implies that if we increase all the inputs by a certain proportion, output increases by more than that proportion. Decreasing returns to scale implies that if we want to increase the output by a certain proportion, inputs need to be increased by more than that proportion. Constant returns to scale implies a proportional increase in inputs resulting in a proportional increase in output. So the average cost remains constant as long as CRS operates. The LRAC curve is a 'U'-shaped curve. Its downward sloping part corresponds to IRS and upward rising part corresponds to DRS. At the minimum point of the LRAC curve, CRS is observed. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC cuts the LRAC curve from below at the minimum point of the LRAC.
In the long run when the average cost is rising, marginal cost must be____.
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Greater than the average cost.
When the average cost is rising, the marginal cost must be greater than the average cost.
Average cost (AC) is the cost per unit of all the units together. Marginal cost (MC) is the cost of one more unit. An extra unit that costs more than the average pulls the average up.
Option (1) Equal to average cost. — Incorrect. While AC is rising, MC is above it. MC equals AC where AC stops falling and starts rising, at the minimum point of AC.
Option (2) Less than the average cost. — Incorrect. An MC below the average pulls the average down. This is the falling part of AC.
Option (3) Greater than the average cost. — Correct. Each extra unit costs more than the average, so the average goes up.
Option (4) Falling — Incorrect. On the rising part of the ‘U’-shaped AC curve, the MC curve lies above it and is rising too.
NCERT (2026-27): “Shapes of the Long Run Cost Curves … Let us check how the LRMC curve looks like. For the first unit of output, both LRMC and LRAC are the same. Then, as output increases, LRAC initially falls, and then, after a certain point, it rises. As long as average cost is falling, marginal cost must be less than the average cost. When the average cost is rising, marginal cost must be greater than the average cost. LRMC curve is therefore a ‘U’-shaped curve. It cuts the LRAC curve from below at the minimum point of the LRAC. Figure 3.9 shows the shapes of the long run marginal cost and the long run average cost curves for a typical firm.…”
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