Question

When average total cost is at its minimum

a. average total cost is equal to average variable cost.
b. average variable cost is declining in output.
c. marginal cost is greater than average total cost.
d. marginal cost is equal to average total cost?

Answer 1

When the average total cost is at its minimum, the marginal cost is equal to the average total cost.

Step-by-step explanation:

In a perfect competition scenario, the profit-maximizing firm chooses the output level where price (or marginal revenue) is equal to marginal cost: P = MR = MC. Therefore, when the average total cost is at its minimum, option d is correct, which means that marginal cost is equal to the average total cost.

To further explain this, a firm's individual supply curve is determined by the marginal cost curve above the average variable cost curve. When marginal costs increase, it means that the firm's supply curve will shift upwards.

It is also worth mentioning that average variable costs are typically U-shaped. If a firm's average variable cost of production is lower than the market price, the firm would be earning profits.

Answer 2

D.) Marginal cost is equal to average total cost.  (Because when the average total cost is at its minimum, marginal cost is also at its minimum.)