10) Each graph below illustrates three short run cost curves for firms, where AT

Question

10) Each graph below illustrates three short run cost curves for firms, where ATC is Average Total Cost (aka Average Cost), MC is Marginal Cost, and AVC is Average Variable Cost. Please sort the graphs as valid or invalid based on what you know about the relationships between these curves.

Each graph below illustrates three short run cost curves for firms, where ATC is Average Total Cost (aka Average Cost), MC is Marginal Cost, and AVC is Average Variable Cost. Please sort the graphs as valid or invalid based on what you know about the relationships between these curves.

Explanation / Answer

(1) Valid graphs are: Graph B, Graph C, Graph F

(2) Invalid graphs are:

(a) Graph A (Since AVC curve lies below ATC curve)

(b) Graph D (Since AVC curve does not intersect ATC curve from below, because AVC = ATC - AFC, and AFC is non-zero)

(c) Graph E (Since MC intersects both AVC and ATC curves from below, at their minimum points)

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