Question

On the basis of given diagram, answer the following question:
(i) Identify the three short-run cost curves.
(ii) Why all the three curves are U-shaped ?
(iii) Why does the distance between curve A and curve B fall with rise in output ? Will they coincide at any level of output?
(iv) Why does the minimum point of curve A lie to the right of minimum point of curve B.

Answer 1

(i) Curve `A = AC` curve, Curve `B = AVC` curve , and Curve `C = MC` curve.
(ii) All the three curves are U-shaped because of Law of Variable properties.
The distance between curve A (i.e., `AC` curve) and curve B (i.e., AVC curve) falls with rise in output because the gap between them is AFC, which continues to decline with rise in output. AC and AVC curves will not coincide at any level to output. AC and AVC curves wil not coincide wil at any level to output as AFC can never be zero.

(iv) The minimum point of curve A(i.e., AC curve) lie to the right of minimum point of curve B (i.e, AVC curve) because AC continuous to fall due to decreasing AFC even after AVC starts rising.