|Posted on April 16, 2014 at 8:05 PM|
Whether you are drawing a perfectly competitive firm or a monopolist, the per-unit cost curves all look the same. Here is what you should remember when sketching the curves:
1. The marginal cost (MC) curve looks like a check mark (or Nike swoosh) because of the law of diminishing marginal returns.
2. The average total cost (ATC) curve is u-shaped and must intersect the MC curve when ATC is at its lowest point.
3. The average variable cost (AVC) curve is also u-shaped, but must be below the ATC. The AVC will intersect the MC curve at the AVC's minimum. The distance between the AVC and the ATC should narrow as output increases because this distance represents the firm's average fixed costs.
This No Bull Review graph shows what the ATC, AVC, and MC look like. Always begin by drawing the MC curve first.
AP Microeconomics Unit 2 Product Markets