CA Foundation P4 · Chapter 3 · Question 11 of 15
Which statement about the relationship between marginal cost (MC) and average cost (AC) is correct?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) MC cuts both AVC and ATC at their respective minimum points from below
Explanation
When MC is below an average, the average falls; when MC is above it, the average rises. Therefore MC intersects AVC and ATC at their minimum points, rising through them from below. Because ATC includes AFC, its minimum occurs at a larger output than the minimum of AVC and MC.
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