Average cost is equal to Marginal cost when:
Average cost is equal to Marginal cost when:
- A) Average cost is at the maximum
- B) Average cost is at the minimum
- C) Marginal cost is at the minimum
- D) Marginal cost is at the maximum
Correct Answer: B) Average cost is at the minimum
Explanation
This question is about the relationship between average cost and marginal cost. Average cost is the total cost of producing a good or service, divided by the quantity produced. Marginal cost is the additional cost of producing one more unit of a good or service. The question asks when the average cost is equal to the marginal cost.
The correct answer is Option B: Average cost is at the minimum. When the average cost is at its minimum, it means that the cost of producing each additional unit is decreasing. This also means that the marginal cost is equal to the average cost at that point.
If the average cost is at the maximum (Option A), it means that the cost of producing each additional unit is increasing, so the marginal cost will be higher than the average cost. If the marginal cost is at the minimum (Option C), it means that the cost of producing one more unit is at its lowest point, but this does not necessarily mean that it is equal to the average cost. Finally, if the marginal cost is at the maximum (Option D), it means that the cost of producing one more unit is at its highest point, so it will be higher than the average cost.
Understanding the relationship between average cost and marginal cost is important in economics because it helps businesses determine the optimal level of production and pricing for their goods or services.