Where do marginal cost (MC) and average total cost (ATC) intersect on a typical cost curve?

• A. At its minimum
• B. At its maximum
• C. Where MC equals zero
• D. Where ATC is rising

Answer: (A)

Marginal cost tells you the cost of producing one more unit, while average total cost is the cost per unit of output. On a typical U-shaped ATC curve, ATC falls when MC is below ATC and rises when MC is above ATC. The two curves cross where MC equals ATC, and that point is the minimum of the ATC curve. You can see this from the slope of ATC: ATC' = (MC − ATC)/Q, so the slope is zero exactly when MC = ATC, which occurs at ATC’s bottom. Before that point MC < ATC and ATC falls; after that point MC > ATC and ATC rises.