Microeconomic Theory
Explainer
Why Marginal Cost Cuts Average Cost at Its Lowest
The MC curve always crosses the AC curve at exactly its minimum. Coincidence?
Quick check · tap an answer to continue
Lesson notes
Key points
- Marginal cost is the change in total cost from producing one more unit of output.
- In the short run, diminishing marginal returns to a variable input make marginal cost eventually rise.
- When marginal cost is below average cost it pulls the average down; when above, it pushes it up.
- So MC must cut ATC at its minimum point, which is the firm's efficient scale of production.
Takeaway: MC crosses ATC at its minimum: below pulls down, above pushes up.
Quick check: If MC is below ATC, what happens to ATC as output rises?
- It rises
- It stays constant
- It falls
Marginal costDiminishing returnsMarginal–average ruleMinimum ATC
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