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Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions? (a) The MC curve, ATC curve, and AVC curve all intersect at the same point
Which of the following is true of the relationship between the marginal cost function and the average total cost and average variable cost functions?
(a) The MC curve, ATC curve, and AVC curve all intersect at the same point.
(b) If MC is greater than ATC and AVC, then ATC and AVC will increase.
(c) The ATC and AVC curves intersect the MC curve at minimum MC.
(d) At each level of output, MC is equal to difference between AVC and ATC.
Expert Solution
The answer is (b) If MC is greater than ATC and AVC, then ATC and AVC will increase.
When the marginal cost (MC) curve is above the average total cost (ATC) curve and average variable cost (AVC) curve, then increasing the production by a unit increases both the ATC and AVC. This relates to the relationship between these three measures - ATC rises when the MC is more than ATC, and AVC has the same relationship with MC as ATC.
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