FIGURE 22-5 The Relationship Between the Average Total Cost and the Marginal Cost Curves

To see why the marginal cost curve (MC) must cut through the average total cost curve (ATC) at the minimum average total cost (point M), corresponding to the minimum-cost output, we look at what happens if marginal cost is different from average total cost. If marginal cost is less than average total cost (MC_L), an increase in output must reduce average total cost, as in the movement from A₁ to A₂. If marginal cost is greater than average total cost (MC_H), an increase in output must increase average total cost, as in the movement fromB₁ to B₂.