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JAMB Economics 2005 Question 22

Question 22

Market Structures

For a firm to break even in the long run, the marginal cost curve must cut the

  1. A.average variable cost curve at its highest point
  2. B.average cost curve at any two lowest point
  3. C.total cost cure at its lowest point
  4. D.average cost curve at its lowest point
Show the answer and explanation

Answer: D (average cost curve at its lowest point)

Explanation

The MC curve always cuts the average cost curve at its lowest point; when price equals this minimum average cost the firm just breaks even.