Explain why the marginal cost curve intersects a U-shaped average cost curve at its minimum point
What will be an ideal response?
At low quantities, the average cost curve declines as the quantity increases. The marginal cost is below the average cost. The marginal cost represents the cost of an additional unit of production. Thus, as the marginal cost curve declines, this pulls the average cost down from its previous level. Then, the marginal cost curve will begin to rise. However, the marginal cost is still below the average cost, and will continue to lower the average cost. When the two costs are equal the marginal cost will leave the average cost unchanged. Then, the marginal cost will be above the average cost so it will start to pull up the average cost. Thus, the marginal cost curve will intersect the average cost curve at its minimum point.
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A production function describes
a. how a firm maximizes profits. b. how a firm turns inputs into output. c. the minimal cost of producing a given level of output. d. the relationship between cost and output.
Disposable income is
A. The amount households have left to spend after savings are subtracted. B. After-tax income of households; personal income less personal taxes. C. The amount the household sector earns in producing the GDP. D. Personal income plus income taxes.
Discretionary monetary policy has the drawback that it
A) must lead to very high inflation. B) is currently illegal in the United States. C) makes inflation expectations harder to manage. D) cannot be implemented using changes in the federal funds rate. E) None of the above answers is correct.