Association of Chartered Certified Accountants (ACCA) Certification Practice Test

The marginal cost curve also represents which of the following?

1. Average cost curve

2. Marginal supply curve

3. Demand curve

4. Revenue curve

The correct answer is: Marginal supply curve

The marginal cost curve is significant in economics, particularly in the context of production and supply decisions. It represents the additional cost incurred when producing one more unit of a good or service. Specifically, the marginal cost curve aligns closely with the marginal supply curve in that it reflects the costs associated with increasing production, thereby informing how much of a good or service a firm is willing to supply at different price levels. In a competitive market, suppliers will produce additional units of a good as long as the price they can receive for those units covers the marginal cost of production. Therefore, the marginal cost curve serves as the supply curve above the minimum average variable cost, indicating the quantities a firm is willing to supply at various price points. This relationship is not the same for the average cost curve, demand curve, or revenue curve. The average cost curve shows the cost per unit at different levels of output, but it doesn’t directly inform supply decisions based on additional units. The demand curve illustrates consumer willingness to purchase at various prices, which is distinct from producer costs. Lastly, the revenue curve reflects how total revenue changes with quantity sold, rather than the cost of producing additional units.