Question

1. Describe in words the graph of marginal costs, average total costs, average variable costs, and...

1. Describe in words the graph of marginal costs, average total costs, average variable costs, and average fixed costs. Be as detailed as possible in describing them as a curve in and of themselves and their various positions relative to one another.

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Answer #1

Relationship between MC, ATC, AVC, and AFC:

1. When ATC decreases (or declines), MC is lower than the ATC. When ATC increases (or rises), MC rises faster than ATC, and when ATC remains constant, MC is equal to ATC showing in the above graph.

2. When the output is low (Q or before Q), ATC is far from AVC but when the output increases (Q2 or after Q2), AVC is too close to ATC. On the other hand, when output is high ATC is far away from the AFC.

3. AVC will never touch the ATC, this is because AFC is fixed (not becomes zero). At the lowest point, ATC intersects MC.

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