Average variable costs are minimized when
A) marginal costs begin to increase.
B) marginal costs begin to decrease.
C) marginal cost is greater than average total cost.
D) marginal cost equals average variable cost.

Question

Quizplus · Accepted Answer

Average variable costs represent the variable costs per unit of output, and marginal cost represents the additional cost of producing one extra unit. As output increases, the average variable costs initially decrease due to economies of scale, but eventually start increasing due to diseconomies of scale. At the point where marginal cost equals average variable cost (MC=AVC), the average variable costs are minimized. Therefore, the correct answer is D: marginal cost equals average variable cost.

Average Variable Costs Are Minimized When