Marginal cost can be equal to average variable cost when _________.
A
average variable cost is falling
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B
average variable cost is increasing
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C
average variable cost is minimum
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D
under any of the above situations
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Solution
The correct option is B average variable cost is minimum
When the MC curve is lower than the AC curve, ie the MC ≤ 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 ≥ 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.