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At the point where the average cost curve reaches its minimum, the marginal cost curve:
ALies above the average cost curve there
BLies below the average cost curve there
CCuts the average cost curve at that point
DRuns parallel to the average cost curve
Answer & Solution
Correct answer: C. Cuts the average cost curve at that point
1. When AC is falling MC is below AC, and when AC is rising MC is above AC.
2. At AC's minimum, AC switches from falling to rising, so MC must cross AC exactly there.
3. Hence the MC curve cuts the AC curve at AC's minimum (optimum) point.
4. MC is above (A) only after the minimum, below (B) only before it, and the curves are not parallel (D) since they intersect. Hence MC cuts AC at its minimum.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 3 Unit II "Theory of Cost", p.7–8_
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