Question

Which of the following best describes the relationship between the average total cost curve and the marginal cost curve in the short run?

a) ATC curve intersects the MC curve at the minimum point of ATC
b) ATC curve is always above the MC curve
c) ATC curve is always below the MC curve
d) ATC and MC curves are parallel

Answer 1

The marginal cost curve (MC) intersects the average total cost curve (ATC) at the ATC's minimum point (option a). Below this point, MC decreases ATC, and above it, MC increases ATC.

Step-by-step explanation:

The question asks about the relationship between the average total cost curve (ATC) and the marginal cost curve (MC) in the short run. The correct relationship is that the MC curve intersects the ATC curve at the minimum point of the ATC. When the MC is below the ATC, it is pulling the ATC down, indicating that producing one more unit will reduce the average total costs.

This results in a downward-sloping section of the ATC to the left of where the MC intersects it. Conversely, when the MC is above the ATC, it is pulling the ATC up, suggesting that additional production will increase the average total costs, which causes an upward-sloping section of the ATC to the right of the intersection. Therefore, the point of transition, where the trends change from decreasing to increasing average costs, occurs at the minimum point of the ATC curve.