Variable cost is a close approximation of marginal cost within the relevant range.

Variable cost is a close approximation of marginal cost within the relevant range.

• A. True
• B. False
• C. Not enough information
• D. Sometimes true

Answer: (A)

Within the relevant range, fixed costs stay the same as output changes, so the additional cost of producing one more unit comes almost entirely from variable costs. Marginal cost is that extra cost for one more unit, which means it is effectively the increase in variable cost for that unit. If variable costs rise roughly in proportion to output (a near-linear shape in this range), the marginal cost per unit is close to the variable cost per unit, making variable cost a good close proxy for marginal cost. If the variable cost curve isn’t perfectly linear, marginal cost is the slope of that curve (the incremental cost for the next unit), but for small increments in the relevant range it still aligns closely with the per-unit variable cost, so the approximation holds.

Within the relevant range, fixed costs stay the same as output changes, so the additional cost of producing one more unit comes almost entirely from variable costs. Marginal cost is that extra cost for one more unit, which means it is effectively the increase in variable cost for that unit. If variable costs rise roughly in proportion to output (a near-linear shape in this range), the marginal cost per unit is close to the variable cost per unit, making variable cost a good close proxy for marginal cost. If the variable cost curve isn’t perfectly linear, marginal cost is the slope of that curve (the incremental cost for the next unit), but for small increments in the relevant range it still aligns closely with the per-unit variable cost, so the approximation holds.