Which statement about marginal cost and average total cost is true?

Which statement about marginal cost and average total cost is true?

• A. MC is the slope of the total cost curve.
• B. MC intersects ATC at its minimum; MC below ATC reduces ATC; MC above ATC raises ATC.
• C. MC is always greater than ATC.
• D. ATC equals marginal revenue in equilibrium.

Answer: (B)

The central idea is how marginal cost interacts with average total cost as you produce more. Marginal cost is the extra cost of making one more unit, while average total cost is the total cost divided by the quantity produced. Think about what happens to ATC when the cost of adding one more unit is lower or higher than the current average. If the next unit costs less than the current average, that unit pulls the average down, so ATC falls. If the next unit costs more than the current average, that unit pulls the average up, so ATC rises. Therefore, ATC decreases while MC is below ATC and increases while MC is above ATC. The point where MC equals ATC marks the bottom of the ATC curve, so MC intersects ATC at ATC’s minimum. Also, MC is the slope of the total cost curve, which aligns with this relationship: the slope tells you how TC changes with output, and whether that change lowers or raises ATC depends on how MC compares to ATC at that output level. That combination—MC below ATC lowers ATC, MC above ATC raises ATC, and MC equals ATC at the minimum—captures the true pattern of how marginal and average total costs relate.

The central idea is how marginal cost interacts with average total cost as you produce more. Marginal cost is the extra cost of making one more unit, while average total cost is the total cost divided by the quantity produced.

Think about what happens to ATC when the cost of adding one more unit is lower or higher than the current average. If the next unit costs less than the current average, that unit pulls the average down, so ATC falls. If the next unit costs more than the current average, that unit pulls the average up, so ATC rises. Therefore, ATC decreases while MC is below ATC and increases while MC is above ATC. The point where MC equals ATC marks the bottom of the ATC curve, so MC intersects ATC at ATC’s minimum.

Also, MC is the slope of the total cost curve, which aligns with this relationship: the slope tells you how TC changes with output, and whether that change lowers or raises ATC depends on how MC compares to ATC at that output level.

That combination—MC below ATC lowers ATC, MC above ATC raises ATC, and MC equals ATC at the minimum—captures the true pattern of how marginal and average total costs relate.