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Chapter 7: Problem 10

If both the marginal cost and the average variable cost curves are \(J\) -shaped, at the point of minimum average variable cost, the marginal cost must be a. greater than the average variable cost. b. less than the average variable cost. c. equal to the average variable cost. d. at its minimum.

Short Answer

Expert verified
At the point of minimum average variable cost, the marginal cost is equal to the average variable cost (MC = AVC). This occurs since the MC curve intersects the AVC curve at the point of minimum AVC. Therefore, the correct answer is c. equal to the average variable cost.

Step by step solution

01

Understand the definition of Marginal Cost (MC) and Average Variable Cost (AVC)

Marginal Cost (MC) is the increase in total cost that occurs as production is increased by one unit, whereas the Average Variable Cost (AVC) is the total variable cost divided by the quantity of output produced. It's important to note that if both the marginal cost and the average variable cost curves are J-shaped, they are decreasing initially and then increasing.
02

Analyze the position of MC and AVC Curves

At the point of minimum AVC, the AVC curve is at its lowest point and begins to increase. When the AVC curve is decreasing, the MC is less than the AVC, since, if the MC were greater than the AVC, the AVC curve would increase. Conversely, when the AVC curve is increasing, the MC is greater than the AVC because an increase in the MC would push the AVC upward. So, at the point of minimum AVC, the MC must be equal to AVC, which is when the MC curve intersects the AVC curve.
03

Apply the analysis to the given options

Given the analysis above, we can now evaluate each of the given choices: a. MC > AVC: This would be true if the AVC curve is increasing. However, we are looking for the relationship at the point of minimum AVC, where the MC and AVC curves intersect. b. MC < AVC: This would be true if the AVC curve is decreasing. But, at the point of minimum AVC, this isn't the case. c. MC = AVC: This is the correct relationship as the MC curve intersects the AVC curve at the point of minimum AVC. d. MC at its minimum: This statement doesn't address the relationship between the MC and AVC; therefore, it's not valid for this exercise. So, the correct answer is: c. equal to the average variable cost.

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Most popular questions from this chapter

Each potential short-run average total cost curve is tangent to the long-run average cost curve at a. the level of output that minimizes short-run average total cost. b. the minimum point of the average total cost curve. c. the minimum point of the long-run average cost curve. d. a single point on the short-run average total cost curve.

long-run constant returns to scale exist when the a. short-run average total cost curve is constant. b. long-run average cost curve rises. c. long-run average cost curve is flat. d. long-run average cost curve falls.

Suppose a typical firm is producing \(x\) units of output per day. Using any other plant size, the long-run average cost would increase. The firm is operating at a point at which a. its long-run average cost curve is at a minimum. b. its short-run average total cost curve is at a minimum. c. both (a) and (b) are true. d. neither (a) nor (b) is true.

The total fixed cost curve is a. upward sloping. b. downward sloping. c. upward sloping, then downward sloping. d. unchanged with the level of output.

An example of a variable input is a. raw materials. b. energy. c. hourly labor. d. all of the above.
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