The Average Cost (AC) and Marginal Cost (MC) of a firm at five output levels are given below. State, at each output, whether AC is falling, rising, or at its (approximate) minimum, and identify the output at which AC is lowest.
| Q | 1 | 2 | 3 | 4 | 5 |
|---|---|---|---|---|---|
| AC (₹) | 50 | 40 | 35 | 36 | 40 |
| MC (₹) | 50 | 30 | 25 | 40 | 56 |
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Start your 14-day free trial to unlock the full solution →Step 1 — Compare MC and AC at each output:
| Q | AC (₹) | MC (₹) | MC vs AC | AC's behaviour |
|---|---|---|---|---|
| 1 | 50 | 50 | equal | first unit — a special case, not the minimum |
| 2 | 40 | 30 | MC < AC | AC falling (40 < 50) |
| 3 | 35 | 25 | MC < AC | AC still falling (35 < 40) — lowest AC in the table |
| 4 | 36 | 40 | MC > AC | AC rising (36 > 35) |
| 5 | 40 | 56 | MC > AC | AC rising further (40 > 36) |
Step 2 — Interpretation. At Q = 1, MC and AC being equal is simply a feature of the very first unit (with no earlier output to compare against) and does not by itself signal a minimum. From Q = 2 to Q = 3, MC stays below AC, and AC keeps falling, reaching its lowest tabulated value of ₹35 at Q = 3. From Q = 4 onward, MC rises above AC, and AC turns upward (36, then 40). …
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