At which point does the SMC curve cut the SAC curve? Give reason in support of your answer.

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Solution

SMC curve cuts the SAC curve only at its lowest (or minimum) point because it is only here that SMC $=$ SAC.

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. Eventually, the marginal cost of producing another unit will be greater than the average total cost and then the average total cost curve will start to rise.

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