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Production and cost — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsProduction and cost3 Marks
Question
Explain the relation between marginal cost and average cost.
✓

Answer

MC affects AC. The relationship between MC and AC is as follows:
  1. When MC < AC, then AC falls.
  2. When MC = AC, then AC is constant.
  3. When MC > AC, then AC rises.
  4. MC curve always intersects AC curve at its minimum point from below.
The given diagram illustrate the relationship.

The diagram shows that so long as MC curve lies below AC curve, AC curve is falling. This is up to point M. When AC = MC, AC is minimum. MC curve always intersect AC at its minimum point from below. This occurs at point M. When MC curve lies above the AC curve, AC starts rising. This is after point M.

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