Q.State the relationship between AC and MC.

AC and MC are both U-shaped; MC lies below AC when AC is falling, above AC when AC is rising, and cuts AC at its lowest point.

The relationship between Average Cost (AC) and Marginal Cost (MC) is:

1. When AC is falling, MC lies below AC — each additional (marginal) unit costs less than the average, so it pulls the average down.
2. When AC is rising, MC lies above AC — each additional unit costs more than the average, so it pulls the average up. …