Asked by Avelina Milam on Jun 14, 2024
Verified
Refer to Figure 8.4.2 above. When average variable cost (AVC) is minimum,
A) profit is maximized.
B) AVC = MC.
C) AVC = ATC.
D) the firm suffers a loss.
Average Variable Cost
Variable cost divided by the level of output.
AVC
Stands for Average Variable Cost, referring to the cost variable inputs per unit of output in the short run.
- Examine the interconnection between total revenue (TR), total cost (TC), marginal revenue (MR), and marginal cost (MC) to understand their impact on maximizing profits.
- Relate the ideas of average variable cost (AVC), average total cost (ATC), and minimum efficient scale with a firm's decisions in the short run and long run.
Verified Answer
AV
Anand VishnuJun 17, 2024
Final Answer :
B
Explanation :
When AVC is minimum, it intersects with MC. This is the point where the firm is producing output at the lowest possible cost. Therefore, AVC = MC is the best choice. Profit maximization occurs when MC = MR, but this information is not provided in the graph. AVC = ATC is not relevant in determining cost or profit at this specific point. The graph does not provide enough information to determine if the firm is making a profit or suffering a loss, so option D cannot be chosen.
Learning Objectives
- Examine the interconnection between total revenue (TR), total cost (TC), marginal revenue (MR), and marginal cost (MC) to understand their impact on maximizing profits.
- Relate the ideas of average variable cost (AVC), average total cost (ATC), and minimum efficient scale with a firm's decisions in the short run and long run.