Question on: JAMB Economics - 2005
For a firm to break even in the long run, the marginal cost curve must cut the
A
average variable cost curve at its higest point
B
average cost cure at its lowest point
C
average cost curve at its lowest point
D
total cost cure at its lowest point
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Correct Option: C
For a firm to break even in the long run, the following must be true:
- Break-even point: This is the point where the firm's total revenue equals its total costs, resulting in zero economic profit.
- Long-run equilibrium: In the long run, firms can adjust all inputs, including plant size.
- Relationship between MC and AC: The marginal cost (MC) curve intersects the average cost (AC) curve at its lowest point. This is because when MC is below AC, AC is falling, and when MC is above AC, AC is rising. Therefore, MC must equal AC at AC's minimum point.
Therefore, the marginal cost curve must cut the average cost curve at its lowest point for a firm to break even in the long run.
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