Question

Summarize in one sentence the relationship between AVC and MC and between ATC and MC.

Answer 1

1) MC is below AVC when AVC falls , MC equals AVC when AVC reaches minimum point and MC is above AVC when AVC rises.

( When MC is below AVC, MC pulls Average down. when MC is above AVC , MC is pushing average up; therefore MC and AVC intersect at the lowest AVC.)

2) MC is below ATC when ATC falls, MC equals ATC when ATC reaches minimum point and MC is above ATC when ATC rises.

( When mc curve is below ATCcurve, it will pull the ATC curve down and ATC will be falling. When MC curve is above ATC , it will push the ATV curve up and ATC will be rising.)

* We can summarise the relationship between MC , AVC and ATC as follows.

( When marginal cost is below average cost ( ATC or AVC), it pulls the average cost down, marginal cost equals average cost when average cost is minimum and when marginal cost is above average cost, it pushes average cost up )

The relationship between Marginal cost and average total cost and marginal cost and average variable cost is similar. However, we must keep in mind that average variable cost curve lies below average total cost curve)