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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406

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Microeconomics

13th Edition
Roger A. Arnold
ISBN: 9781337617406
Textbook Problem

Why does the MC curve cut the ATC curve at the latter’s lowest point?

To determine

Explain the reason for firm’s marginal cost curve is cut the lowest point of average total cost curve.

Explanation

Figure 1 illustrates the relationship between marginal cost curve and average total cost curve.

In Figure 1, horizontal axis measures output and vertical axis measures cost. In initial level of production, average total cost decreases as output increases. The reason is that when the huge fixed cost is spread among the huge output, it starts decreases. After certain point, average total cost increases as production increases due to dis-economies of scale.

The marginal cost curve depicts the additional due to increasing the one more unit of output...

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