Question

In the context of Rajiv's Juice Bar cost schedules, which statement accurately describes the graphical representation of marginal cost (orange), average variable cost (purple), and average total cost (green)?

A) The marginal cost curve intersects the average variable cost and average total cost curves at their minimum points.
B) The average variable cost curve lies below the marginal cost and average total cost curves.
C) The average total cost curve intersects the marginal cost and average variable cost curves at their minimum points.
D) The marginal cost curve lies below the average variable cost and average total cost curves.

Answer 1

The marginal cost curve intersects the average total cost and average variable cost curves at their minimum points. The AVC curve lies below the ATC curve, and both are typically U-shaped. The MC curve is upward-sloping and indicates the cost of producing an additional unit.

Step-by-step explanation:

In the context of cost schedules at Rajiv's Juice Bar, we observe specific behaviors of cost curves in a graph. The marginal cost (MC) curve is upward-sloping and intersects both the average total cost (ATC) and average variable cost (AVC) curves at their respective minimum points.

This is indicative of the fact that when MC is below ATC or AVC, producing an additional unit will bring the average costs down, meaning the curves are decreasing at this point. Once MC intersects ATC or AVC, any additional unit produced will cause the average costs to increase, hence the ATC and AVC curves begin to slope upwards after the intersection.

Regarding the other cost curves, the average variable cost curve is typically U-shaped and lies below the ATC curve, reflecting variable costs that do not include fixed costs. The average total cost curve also has a U-shape, including both variable and fixed costs, meaning it starts above the AVC curve.