MC and AVC Minimum Output Relationship
Marginal Cost (MC) represents the cost increase from producing one more unit, while Average Variable Cost (AVC) is the total variable cost per unit. Understanding their relationship helps analyze firm behavior.
Intersection Point of Cost Curves
A key principle is that the MC curve intersects the AVC curve precisely at the minimum point of the AVC curve.
Analysis of Curve Minima
Both MC and AVC curves typically exhibit a U-shape due to economies and diseconomies of scale and diminishing marginal returns.
- The MC curve typically falls initially, reaches its minimum value, and then rises.
- The AVC curve also falls initially, reaches its minimum value, and then rises.
- In standard economic models, the minimum point of the MC curve occurs at a lower output level than the minimum point of the AVC curve.
Because MC is below AVC when AVC is falling, and above AVC when AVC is rising, the MC curve must bottom out before the AVC curve does. This implies that the output level where AVC reaches its minimum is greater than the output level where MC reaches its minimum.
Therefore, the minimum of AVC occurs at a larger output than the minimum of MC.
Important Questions from Microeconomics
Which of the following statement is correct?
I. Indifference curves are sloping from left to right.
II. Higher indifference curve gives a higher level of utility.
If in a production process, all inputs are tripled, which of the following statements follows?
I. If the output is tripled, then decreasing returns to scale apply.
II. When the output is doubled, constant returns to scale apply.
III. If the output is more than tripled, then increasing returns to scale apply.
A market, in which there are a large number of firms, homogeneous product, infinite elasticity of demand for an individual firm and no control over price by firms, is termed as________.
If the two goods are substituted, then the indifference curve will be:
The government multiplier is given by (where c = MPC and t = tax rate)
