Question

Draw Average Variable Cost (AVC), Average Total Cost (ATC) and Marginal Cost (MC) curves in a single diagram. State the relation between MC curve and AVC and ATC curves.

Answer 1

(i) MC curves intersects ATC and AVC curves at their minimum points.
(ii) Vertical distance between ATC curve and AVC curve goes on declining as output increases.
(ii) Vertical distance between ATC curve and AVC curve goes on declining as output increases.
Relationship among MC, AVC & AC:
When `MC lt ATC " or " AVC, ATC " or " AVC` falls,
`MC = ATC " or " AVC, ATC " or " AVC` constant
`MC gt ATC " or : AVC, ATC " or " AVC` rises.