Marginal cost is equal to average total cost when:

• A. marginal cost is decreasing
• B. average variable cost is zero
• C. average total cost is at its maximum
• D. average total cost is at its minimum

Answer: (D)

Verified step by step guidance

1. Recall the relationship between marginal cost (MC) and average total cost (ATC): when MC is less than ATC, ATC is decreasing; when MC is greater than ATC, ATC is increasing.
2. Understand that the point where MC equals ATC corresponds to the minimum point of the ATC curve because this is where the ATC stops decreasing and starts increasing.
3. Recognize that the question asks when marginal cost equals average total cost, so focus on the behavior of the ATC curve at this point.
4. Eliminate options that do not fit this relationship: MC decreasing does not guarantee equality with ATC, average variable cost being zero is unrelated to the equality of MC and ATC, and ATC being at its maximum contradicts the known cost curve behavior.
5. Conclude that marginal cost equals average total cost when average total cost is at its minimum, as this is the point where the MC curve intersects the ATC curve from below.