question_answer

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 & ATC curves.

Answer:

           

Relation between MC and AVC­ -

(i) When AVC falls, MC < AVC or AVC falls only when MC < AVC. (Diagrammatically MC curve lies below AVC curve till their intersection)

(ii) When AVC is minimum, MC = AVC or AVC is constant or minimum when MC = AVC (Diagrammatically the point where MC curve intersects AVC curve is the minimum point of AVC)

(iii) When AVC rises, MC is more than AVC or AVC rises when MC > AVC. (Diagrammatically MC lies above AVC curve after intersecting AVC at its minimum point)

Relation between MC and ATC

(i) When AC (i.e., ATC) falls, MC < AC

(ii) When AC is constant, MC = AC

(iii) When AC rises, MC > AC