Question
a) Graphically show the relationship between average and marginal cost.
b) Why do average and marginal cost cross at the minimum point of average cost?
Suggested answer
a) a) Figure 1 graphically shows the relationship between average cost and marginal cost.
a) b) Firstly, marginal cost is less than average cost when average cost continues to fall and, secondly, marginal cost is higher than average cost when average cost is rising. It follows that at the point where average cost ceases to fall - and starts to rise - average cost and marginal cost must be equal. This is why the marginal cost curve crosses the average cost curve at the minimum of the average cost curve.
BI
