the economic meaning of marginal and average costs. If the marginal cost of production is below the average cost

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7.3 • Costs in the Short Run 171

for producing previous units, as it is for the points to the left of where MC crosses ATC, then producing one more

additional unit will reduce average costs overall—and the ATC curve will be downward-sloping in this zone.

Conversely, if the marginal cost of production for producing an additional unit is above the average cost for

producing the earlier units, as it is for points to the right of where MC crosses ATC, then producing a marginal unit

will increase average costs overall—and the ATC curve must be upward-sloping in this zone. The point of transition,

between where MC is pulling ATC down and where it is pulling it up, must occur at the minimum point of the ATC

curve.

This idea of the marginal cost “pulling down” the average cost or “pulling up” the average cost may sound abstract,
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