Confetti Bakery sells bread, cake, and other baked goods. After analyzing their production and costs, management has determined the business has the following marginal and average cost curves. 6. Refer to Figure 8-2. What explains why marginal cost intersects average cost at point C? (a) It is a fluke; marginal cost could also intersect at A at D. (b) At quantities where marginal cost differs from average cost, average cost must either be rising or falling. (c) Marginal cost slopes upward in that region; an upward-sloping curve cannot intersect another curve where it slopes downward. (d) C is midway between where marginal cost reaches a minimum (point B) and the other indicated quantity (point D).
Confetti Bakery sells bread, cake, and other baked goods. After analyzing their production and costs, management has determined the business has the following marginal and average cost curves. 6. Refer to Figure 8-2. What explains why marginal cost intersects average cost at point C? (a) It is a fluke; marginal cost could also intersect at A at D. (b) At quantities where marginal cost differs from average cost, average cost must either be rising or falling. (c) Marginal cost slopes upward in that region; an upward-sloping curve cannot intersect another curve where it slopes downward. (d) C is midway between where marginal cost reaches a minimum (point B) and the other indicated quantity (point D).
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Confetti Bakery sells bread, cake, and other baked goods. After analyzing their production and costs, management has determined the business has the following marginal and average cost curves.
6. Refer to Figure 8-2. What explains why marginal cost intersects average cost at point C?
-
(a) It is a fluke; marginal cost could also intersect at A at D.
-
(b) At quantities where marginal cost differs from average cost, average cost must either be rising or falling.
-
(c) Marginal cost slopes upward in that region; an upward-sloping curve cannot intersect another curve where it slopes downward.
-
(d) C is midway between where marginal cost reaches a minimum (point B) and the other indicated quantity (point D).
Transcribed Image Text:### Cost Curves in Economics
#### Figure 8-2: Intersection of Marginal Cost and Average Cost Curves
**Graph Explanation:**
In the graph provided, we can observe the relationship between Marginal Cost (MC) and Average Cost (AC) over different quantities produced per time period. The graph highlights several key points of intersection and their implications on cost analysis in economics.
1. **Axes:**
- The vertical axis represents cost (labeled AC, MC).
- The horizontal axis represents the quantity per time period.
2. **Curves:**
- **Marginal Cost (MC) Curve:** This curve generally has a U shape, reflecting how the cost of producing one more unit changes as production increases.
- **Average Cost (AC) Curve:** Typically, this curve is also U-shaped, indicating how the average cost per unit changes with the level of production.
3. **Key Points:**
- **Point A:** This is an intersection point on the left side of the graph.
- **Point B:** A lower point on the AC curve before it starts ascending again.
- **Point C:** The pivotal intersection point where the MC curve intersects the AC curve.
- **Point D:** An intersection point on the right side of the graph.
**Discussion:**
The critical focus of this figure is on **Point C**, where the Marginal Cost (MC) intersects the Average Cost (AC) curve. Economically, this point is significant because:
- When the MC intersects the AC at its minimum point (Point C), it indicates that this is the least-cost combination of output.
- At Point C, producing one more unit (MC) equals the cost of the average unit, which helps in determining efficient scale production.
Additionally, the other points (A and D) show intersections that could happen under different conditions. Nonetheless, pure coincidence or specific shifts in cost structures could lead to intersections at these points.
**Question Explanation:**
* What explains why the marginal cost intersects average cost at point C?
* Consider real-world scenarios where average costs decrease initially, then increase after a certain point due to diminishing returns, which results in a cost minimization point.
Understanding the intersection between these cost curves is fundamental in economics, guiding businesses and policymakers in making efficiency and production decisions.
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