Question

You can now apply this analysis to production costs. For a U-shaped average total cost (ATC) curve, when the marginal cost curve is below the average total cost curve, the average total cost must be . Also, when the marginal cost curve is above the average total cost curve, the average total cost must be . Therefore, the marginal cost curve intersects the average total cost curve .

Answer 1

Answer:

The correct answer is: falling; rising; at its minimum point.

Explanation:

The average total cost is the ratio of the total cost incurred in the production process and the level of output. It initially decreases sue to economies of scale. But after reaching a certain level it starts rising because of diseconomies of scale.  

Marginal cost is the cost of producing each additional unit of output. It is the change in the total cost because of a change in output level by one unit.  

If the marginal cost of producing the last unit is lower than the average cost, producing one more unit will reduce the average cost. So when the marginal cost is below average total cost, ATC is falling.  

Similarly, if the marginal cost of producing the last unit is greater than the average cost, producing one more unit will increase the average cost. So when the marginal cost is above average total cost, ATC is rising.

So, the marginal cost curve must be intersecting ATC at its minimum point.