Question

Do you agree with the following statement: AVC and MC intersect at the minimum of marginal cost. a. Yes, since an upward sloping AVC will always intersect MC at the minimum of MC b. Yes, since the MC and AVC curve intersect at the minimum of AVC c. No, since the MC and AVC curve intersect at the minimum of AVC d. No, since only the ATC curve intersects at the minimum of MC

Answer 1

Answer: c. No, since the MC and AVC curve intersect at the minimum of AVC

Explanation:

Marginal cost is the cost of producing one extra unit of a product while average cost is the average of all the units produced so far. Therefore, when Marginal cost is low, it pulls the average costs down with it because it will be lower than the Average costs.

However, as Marginal costs start to rise, average cost will still be low because it is taking into account the lower previous marginal costs. Marginal cost will then keep rising until it intersects the average costs at it's minimum. Once this happens Average cost will start being pulled up because the current high costs will on average eclipse the current low costs.