Practice question · Multiple choice
Average cost curves are U-shaped: falling, then rising. What turns the curve around?
Hints
- Which effect dominates at very low output?
- What must be true of MC for AC to start rising?
Show the answer
D. Fixed costs spread, then diminishing returns take over
Why
Two forces in opposition, one weakening and one strengthening. AC falls while MC is below it and rises once MC exceeds it, which is why MC cuts AC exactly at its minimum.
Practise Production and Costs
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