Kelly,who grows geraniums to sell,is currently producing a level of output at which her marginal cost equals her average variable cost.What must be true about Kelly's average variable cost at this level of output?

Question

Quizplus · Accepted Answer

At the level of output where the marginal cost equals the average variable cost, the average variable cost must be at a minimum. This is because if the average variable cost were higher than this level of output, the marginal cost would be greater than the average variable cost leading to an increase in the average variable cost. If the average variable cost were lower than this level of output, the marginal cost would be less than the average variable cost leading to a decrease in the average variable cost. Therefore, the only possibility is that the average variable cost is at a minimum at the level of output where the marginal cost equals the average variable cost.

Kelly,who Grows Geraniums to Sell,is Currently Producing a Level of Output