Final answer:
The claim that the average total cost curve never crosses the marginal cost curve is false; they intersect at the lowest point of the average total cost curve. Both curves are U-shaped due to economies and diseconomies of scale. The short-run cost curves include fixed costs, while the long-run cost curves assume all factors can change.
Step-by-step explanation:
The statement asserting that the average total cost curve never crosses the marginal cost curve is false. In economic models reflecting cost behaviors, both average cost curves and marginal cost curves generally have a U-shaped pattern. The marginal cost (MC) curve typically intersects the average total cost (ATC) curve at its lowest point. This intersection represents the most efficient scale of production for a firm because, at this point, the incremental cost of producing one more unit (the marginal cost) is equal to the average cost of producing all units.
Cost curves are U-shaped due to the principles of economies and diseconomies of scale. In the initial phase, increased production leads to a decrease in the average total cost because fixed costs are spread out over more units (economies of scale). However, after reaching a certain level of output, additional increases in production can lead to inefficiencies and a rise in the average total cost (diseconomies of scale), which also reflects on the shape of the marginal cost curve.
Short-Run vs. Long-Run Cost Curves
In the short run, the existence of fixed costs means that average cost curves will be U-shaped since only variable costs are allowed to change. This contrasts with the long-run average cost curve, which is typically downward sloping because it reflects economies of scale and allows all factors of production to change, not just the variable ones.
Practical application in firms can differ as they do not always have complete data to construct a total cost curve for all levels of production. Firms tend to experiment with production levels to observe the effects on marginal revenue and marginal costs, as that assists in maximizing profits.