Which of the following is true?
In short run
a) Minimum point of AVC comes before Minimum point of ATC.
b) MC cuts AFC and AVC at their minimum points.
Answer & explanation
Correct answer: option 2
The correct answer is option 2: a is true, b is not
Statement (a): Minimum point of AVC comes before the minimum point of ATC – True
- The Average Variable Cost (AVC) curve reaches its minimum point before the Average Total Cost (ATC) curve because:
- ATC = AVC + AFC, and since AFC (Average Fixed Cost) is always decreasing, ATC keeps decreasing even after AVC reaches its minimum.
- Thus, AVC reaches its lowest point first, and ATC reaches its minimum later due to the influence of AFC.
Statement (b): MC cuts AFC and AVC at their minimum points – False
- Marginal Cost (MC) cuts AVC and ATC at their minimum points, not AFC.
- AFC is always declining and does not have a minimum point, so MC does not intersect AFC at any specific minimum.
- MC always cuts AVC and ATC at their lowest points, but the mention of AFC in the statement makes it incorrect.