Question

Explain relationship between AC and AVC.

class11
Economics...

Answer 1

Relationship between AC & AVC :

1. AC >AVC by the amount of AFC.
2. AC & AVC curves never intersect each other as AFC can never be zero.
3. Both AC & AVC curves are U-shaped due to the law of variable proportion.
4. MC curve cuts AVC & AC curve at their minimum points.

Answer 2

The minimum point of the AC curve is present on the right side of the minimum point of AVC.

How is AC related to AVC?

• The average curve(AC) is equal to the sum of average variable cost(AVC) and average fixed cost(AFC)
• AC and AVC are U- shaped curves
• When the output increases then both AC and AVC fall
• When the output is produced, AVC increases which are stronger than the decrease in AFC so AC increases
• When output increases then AVC decreases because AC consists of AVC and AFC