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, which 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.
You might also like to view...
Refer to Table 2-5. What is Estonia's opportunity cost of producing one board foot of lumber?
A) 0.2 cell phones B) 5 cell phones C) 8 cell phones D) 32 cell phones
A financial contract in which a bank agrees to sell the expected future returns from an underlying bank loan to a third party is referred to as:
A) loan sale B) loan commitment C) credit rationing D) microlending
Between 1860 and 1914, the growth rate in industrial production
(a) fell behind the growth in the overall U.S. population. (b) outpaced the growth rates in the labor force and population. (c) was less than the growth rate in agricultural production. (d) fell behind both the growth rate in agricultural production and that of the overall U.S. population.
What happens when technological advance makes available a new highly productive capital good for which MP/P is greater than for the labor for which it is a substitute resource?
A. Labor will replace the new capital because labor is now cheaper B. The new capital will replace labor because it reduces the firms' costs C. More of both the new capital and labor will be used because firms are more productive D. Less of both the new capital and labor will be used because the firms do not know how to use the new technology