Question

ATC 12 MC 10 АЛС Cost (S) 4 2 0 5 10 15 20 25 30 35 40 45 a. Output What output level has the lowest average variable cost? b. At what point is marginal cost equal to average variable cost? Minimum average total cost is equal to d. Why is the minimum point on the ATC curve at 35 units above the minimum point on the AVC curve at 30 units? e. Why does the marginal cost curve cross through the minimum points on the ATC and AVC curves? c.

Answer 1

a) Lowest average variable cost is at the output level 30. At this output level the AVC reaches its lowest level.

b) At point 'c' the marginal cost equals average variable cost with MC curve intersecting AVC at 30 units of output.

c) Minimum average total cost is $8.

d) Average total cost (ATC) takes into account both average fixed cost (AFC) and average variable cost (AVC) and as result ATC curve lies above AVC curve. Even though AVC curve reaches its minimum at 30 units, the AFC is still falling and as result ATC continues to fall and reaches its minimum at 35 units.