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UI Post-UTME Economics 2025 (Model questions) Question 15

Question 15

Theory of Costs and Revenue

Which of the following are correct regarding the relationship between Average Cost (AC) and Marginal Cost (MC)?
I. When MC < AC, the AC curve is falling
II. When MC > AC, the AC curve is rising
III. MC intersects AC at AC's minimum point
IV. MC is always below AC throughout production

  1. A.I, II and III only
  2. B.I and III only
  3. C.III and IV only
  4. D.All of the above
Show the answer and explanation

Answer: A (I, II and III only)

Explanation

When MC is below AC it pulls AC down; above AC it pulls AC up, so MC cuts AC at its lowest point. MC is not always below AC.