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Question
Why does the SMC curve cut the AVC curve at the minimum point of the AVC curve?
Solution
SMC curve always intersect the AVC curve at its minimum point. This is because to the left of the minimum point of AVC, SMC is below AVC. SMC and AVC both fall but the former falls at a faster rate. At the minimum point K, AVC is equal to SMC. Beyond K, AVC and SMC both rise but the latter rises at a faster rate than the former and also SMC lies above AVC. Therefore, the only point where SMC and AVC are equal is where SMC intersects AVC, i.e., at the minimum point of the AVC curve.
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RELATED QUESTIONS
State the relation between marginal cost and average variable cost.
What are the average fixed cost, average variable cost and average cost of a firm? How are they related?
A firm’s SMC schedule is shown in the following table. The total fixed cost of the firm is Rs 100/-. Find the TVC, TC, AVC and SAC schedules of the firm.
|
L |
TPL |
|
0 |
− |
|
1 |
500 |
|
2 |
300 |
|
3 |
200 |
|
4 |
300 |
|
5 |
500 |
|
6 |
800 |
