# What is the lowest point on average total cost?

The lowest number. An average would be somewhere around the middle.

### Does marginal cost curve always intersect the average cost curve at the average cost curve's lowest point?

When the marginal cost is below the average total costs or the average variable costs,then the AC would be declining.When marginal cost is above the average cost then the average cost would be increasing.Therefore the marginal cost should intersect with the average cost at the lowest point in order to pull the average cost upwards.

### What is the relationship between marginal cost and average total cost?

Marginal cost is the cost incurred in producing an additional unit of a product. It is the cost per unit of a product as against the total cost. It is therefore the variable cost of producing one more unit of a product. Average total cost is the total cost of production at an activity level. it is the total cost of divided by the total production. Whiles marginal cost shows the cost incurred in producing…

### Can you explain the shut-down rule in perfect competition?

Shut-down point is when Price equals Minimum Average Variable Cost. At this point the firm is indifferent between producing or shutting down. This is because at the point Total Revenue is equal to Total Variable Cost, so by producing or shutting down, the firm is making a Loss equal to Total Fixed Costs no matter what it chooses to do

### Why average cost increase when marginal cost is increasing?

Marginal cost = derivative of (Total cost/Quantity) Where Total cost = fixed cost + variable cost Marginal cost = derivative (Variable cost/Quantity) (by definition, fixed costs do not vary with quantity produced) Average cost = Total cost/Quantity The rate of change of average cost is equivalent to its derivative. Thus, AC' = derivative(Total cost/Quantity) => derivative (Variable cost/Quantity) = MC. So, when MC is increasing, AC' is increasing. That is, when marginal cost increases, the…

### Why does the marginal cost curve cut through the average variable cost curve exactly at the minimum of the average variable cost curve?

Marginal cost curve cuts average cost (variable or total cost) at its minimum simply to portray the law of variable proportions. The idea is as labor is increased with capital being fixed, productivity increases upto a point and then decreases and later becomes negative. To relate the same productivity with average cost function, the average cost first decreases , reaches a minimum and then increases. Now marginal cost is just a change in the total…

### Identify the characteristics of a perfectly competitive market and explain how the marginal revenue marginal cost average revenue average variable cost average total cost and price curves all interact?

Characteristics of Perfectly Competitive Market: Free entry / exit (no barriers to entry) Firms produce homogenous products There is perfect knowledge of the market Many Seller and Buyers Seller is a passive price taker Marginal Revenue Curve = Average Revenue = Price = Demand Curve for individual firm. The curve is constant Marginal Cost Curve intersects both Average Variable Cost and Average Total Cost curves at their minimum point Profit Maximisation output level is when…

### The marginal cost mc curve always intersects the atc curve at its minimum point?

When marginal cost is below average total cost, the cost of an additional unit is lower than the average cost of all the units, so it causes average total cost to fall. If marginal cost is greater, the cost of an additional unit is higher, so average total cost will rise. So when they are equal, it will stay the same. Think of it like your GPA. Say ATC=your GPA (the average of all your…

### What is meant by an efficient market equilibrium?

When there is allocative and productive efficiency, there is an efficient market equilibrium, allocative efficiency is when the products that are most wanted are produced, this is achieved when price equals marginal cost, productive efficiency is achieved when the firm is producing on the lowest point on the lowest average cost curve, this is also called the point of technical efficiency, both allocative and productive efficiency lead to an optimum allocation of resources and economic…

### DO Average cost always falls as output increases because fixed costs will be spread more thinly?

Not necessarily. Total Cost = Fixed Cost + Variable Cost; Variable Cost=f(Quantity) and if f`(Quantity)>0 it implies that as quantity produced rises variable cost would rise. Average Total Cost=Average Fixed Cost + Average Variable Cost. If initially the Total Cost function is more of an odd function (mostly it is) then the Average Cost will look more like a parabola i.e. it will tend to fall becuase the Fixed Cost gets thin but later that…

### Why does a monopoly produce less and charge a higher price compared to a competitive market?

According to the cost theory, the profit maximization point happens when marginal revenue crosses with marginal costs. This is due to the fact that al super profits (that exceeds the cost) are harnessed until this point. However, this point where MR=MC does not correspond to the lowest point in the average cost curve therefore resulting in a higher price for a consumer (and welfare loss) In addition, due to the under exploitation of the economies…