CA Foundation · Business Economics · Theory of Production and Cost
A firm's marginal cost curve is rising and cuts the average variable cost (AVC) curve. Which statement about the point of intersection is correct?
The marginal cost curve cuts the average variable cost curve at the minimum point of AVC. Below that output MC is under AVC and pulls it down, and above it MC is over AVC and pulls it up, so AVC is lowest where the two are equal.
- AAVC is at its minimum, because MC equals AVC thereCorrect
- BAVC is still falling, because MC is above AVC there
- CMC is at its minimum, because it meets AVC there
- DAVC is at its maximum, because MC begins to rise there
Explanation
When MC is below AVC, it pulls AVC down; when MC is above AVC, it pulls AVC up. So AVC stops falling and starts rising exactly where MC equals AVC, which is the minimum point of AVC. The MC curve reaches its own minimum earlier, at a lower output, so option C is wrong.
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