Sunday, November 18, 2012

Why MC = AC At The Lowest Point

One questions I always get in Microeconomics is why does the marginal cost curve intersect the average cost curve at the lowest point.  I normally show the students how a grade point goes up or down based on the next class.  So if the next class grade is lower than the grade point average, the GPA falls.  If the next grade is higher, the GPA increases.  But students seldom get this.  So I derived this graph to show that when MC-AC/Q is negative, marginal cost is below AC.  When this quantity is positive, MC is above AC.

The equation was derived from using the product rule for derivatives.  The table shows how easily it is to now show this relationship.

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