Question

In the short run, average cost and marginal cost curves intersect at the point where:

• A. AC is minimum
• B. AC is maximum
• C. MC is minimum
• D. None of the above

Answer 1

The correct option is A AC is minimum

When the MC curve is lower than the AC curve, ie the MC $\le$ AC the average cost will tend to fall as if you take a lower number and add it to the average and then take a new average, the new average has to be lower. At some point the MC will stop falling and begin rising to a point where it will meet the AC curve. Thus only when the MC $\ge$ AC will the AC curve begin to rise as now a higher number is being added, and the new average must be higher. Thus the point that the MC meets the AC curve, has to be its minimum point.