Why does the marginal cost curve intersect the average cost curve at its minimum?

Why does the marginal cost curve intersect the average cost curve at its minimum?

The marginal cost curve always intersects the average total cost curve at its lowest point because the marginal cost of making the next unit of output will always affect the average total cost. As a result, so long as marginal cost is less than average total cost, average total cost will fall.

Why does MC cut AVC at lowest point?

Likewise, the average variable cost will increase, at point Y, if the marginal cost is higher than it. When the average variable cost is equal to the marginal cost, at point Z, the average is constant which is why the curves intersect at the lowest point on the AVC curve.

Why does the marginal cost go down when the average cost is first going down?

The Marginal Cost curve is U shaped because initially when a firm increases its output, total costs, as well as variable costs, start to increase at a diminishing rate. At this stage, due to economies of scale and the Law of Diminishing Returns, Marginal Cost falls till it becomes minimum.

Why marginal cost equals average cost at minimum?

When marginal cost is less than average variable or average total cost, AVC or ATC must be decreasing. Therefore, the only possible point at which marginal cost equals average variable or average total cost is the minimum point.

Why must marginal cost cut both the average variable cost and the average total cost curves at their minimum points?

When MC is above AVC, MC is pushing the average up; therefore MC and AVC intersect at the lowest AVC. AVC falls because MC is the cost of the next unit produced; therefore, when the next unit costs less than the average, it must be pulling the average down. You can see this geometrically on the left.

Why are average cost curve and marginal cost curve U-shaped?

The average cost curve is u-shaped because costs reduce as you increase the output, up to a certain optimal point. From there, the costs begin rising as you increase the output. Average cost is defined as the total costs (fixed costs + variable costs) divided by total output.

Why does the MC curve intersect the AVC and AC curves at their respective lowest points?

Marignal cost curve cuts both AC and AVC at their lowest points. As long as MC is lower than AC/AVC it brings down the average. MC crosses AC when both are equal, i.e at the lowest point, then as MC tends to rise, the average cost also increases. And since, AVC is less than AC.

At what point does MC curve cut AC curve?

MC curve cuts AC curve at its lowest point.

When the marginal cost curve lies below the average cost curve?

When the marginal cost curve is above an average cost curve the average curve is rising. When the marginal costs curve is below an average curve the average curve is falling. This relation holds regardless of whether the marginal curve is rising or falling.

Why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve?

If the firm’s average cost curves are U-shaped, why does its average variable cost curve achieve its minimum at a lower level of output than the average total cost curve? Total cost is equal to fixed plus variable cost. Average total cost is equal to average fixed plus average variable cost.

When marginal cost is less than average cost?

When average cost is declining as output increases, marginal cost is less than average cost. When average cost is rising, marginal cost is greater than average cost. When average cost is neither rising nor falling (at a minimum or maximum), marginal cost equals average cost.

What is the formula for calculating marginal cost?

The formula used to calculate marginal cost is: Marginal Cost = Change in Total Cost/ Change in Output. You may see the formula transcribed using mathematical symbols, like this: MC = Δ TC/ Δ Q. For example, suppose the total cost of producing 1,000 widgets is $4,500.

How does a firm calculate marginal cost?

Finally, we can calculate marginal cost by dividing the change in cost by the change in quantity. To understand why we do this, just take another look at the definition: marginal cost is the cost incurred by producing one more unit of output. In other words, it is the increase in cost per additional unit.

How do you determine marginal cost?

Marginal cost is a figure calculated from production costs for a short period of time. It takes into account the output and the total cost. To properly plot marginal cost, you will need to chart the output and costs on a spreadsheet and then use a formula to calculate the marginal cost.

What does the marginal cost curve look like?

The long run marginal cost curve like the long run average cost curve is U-shaped. As production expands, the marginal cost falls sharply in the beginning, reaches a minimum and then rises sharply. Relationship Between Log Run Average Cost and Marginal Cost: