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Question

When marginal cost equals average total cost, ________.


A
average total cost is falling
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B
average total cost is rising
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C
average total cost is maximised
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D
average total cost is minimized
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Solution

The correct option is D average total cost is minimized
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.

Economics

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