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Which of the following correctly describes the relationship between the marginal cost and average variable cost curves: a
Which of the following correctly describes the relationship between the marginal cost and average variable cost curves:
a. Marginal Cost is always above Average Variable Cost,
b. Average Variable Cost is always above Marginal Cost,
c. Marginal Cost crosses Average Variable Cost at Average Variable Cost's minimum point,
d. Marginal Cost crosses Average Variable Cost at Marginal Cost's minimum point,
e. Both Average Variable Cost and Marginal Cost first rise and then fall.
Expert Solution
The correct answer to the given question is option c. Marginal Cost crosses Average Variable Cost at Average Variable Cost's minimum point.
The marginal cost is the cost incurred by a firm in producing one incremental or additional unit of product. On the other hand, the average variable cost is determined by dividing the total variable cost by the number of units produced.
For a given firm, the marginal cost curve usually has a hockey stick shape while the average variable cost curve has a U-shape. The marginal cost curve intersects the average variable cost curve at the minimum point of average variable cost.
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