Anyone have any suggestions on remembering all these curves? I know that when MP is Max, MC is min and that when AP is max and AVC is min. But is there a easier way to remember these curves besides straight memory? It gets really confusing when they start asking about what happens when MC is less or exceeds AVC and when ATC and AVC starts to increase and decrease. Theres already enough information we need to remember so if anyone has suggestions please let me know.
Just remember that all the cost curves (exception of the FC) follow the MC cost curve. if MC is falling then so are the others (total cost and AVC curves)
Think about extreme points. When MC < ATC (or AVC) adding one more unit would decrease the average cost since we’re decreasing the average by adding the cost of the (cheaper) new unit. Similarly if if MC > ATC adding one more unit would increase the average cost (try it with a simple numerical example). Thus they intersect at the minimum. For MP think of the upward sloping portion as increased efficiency (eg. 2 people can build a deck faster than 1 person), and the downward sloping portion as diminishing returns (20 people can’t build a deck 10x faster than 2 people). Now at points below the max value of MP (the efficient portion), the MC is getting smaller and smaller. At points above the max of MP the MC is getting larger and larger (efficiency vs diminishing returns). Thus the intersection must be the minimum cost. Same reasoning works for AP/AVC etc.
Thanks, this helps!