If the ATC curve is continually declining, what does this imply about the MC curve?

Solutions

Expert Solution

If ATC is continually decling, it means that MC curve is lower than ATC curve.

reason: When MC curve is lower than ATC curve, ATC curve declines. When MC is greater than ATC, MC curve is above the ATC curve and pulls the ATC curve up. So, if ATC curve is continually declining, it means that the MC curve is below the ATC curve to that stretch where ATC is delining. This contnues even when MC is rising, but as long as MC is lowerr than ATC, MC curve will lie below ATC curve.

However, when MC is greater than ATC, MC curve rises above the ATC curve. When that happens, MC curve intersects the ATC curve at its lowest point and rises above the ATC curve. Thus, as long as MC curve lies below the ATC curve (even when MC is rising), ATC will continuoually decline.

For example, consider this ATC and MC schedule and graph:

Till point a, MC is falling. After that it starts rising. However, ATC is falling even after point a till point b. MC curve intersects ATC curve at point b after which ATC curve also starts rising.

Rahul Sunny answered 1 year ago

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