At which point does the SMC curve cut the SAC curve? Give reason in support of your answer.
The SMC curve cuts the SAC curve from below at the minimum point of SAC.
When SAC is falling, the SMC is less than the SAC. During this phase, the marginal cost pulls down the average cost. Both curves are falling, but SMC falls at a faster rate than SAC.
When SAC is rising, the SMC is greater than the SAC. At this stage, the marginal cost exceeds the average cost and pulls it upward. Both curves are rising, but SMC rises faster than SAC.
At the minimum point of SAC, the SAC curve is neither falling nor rising. This is precisely where SMC equals SAC. Since SMC lies below SAC before this point and above SAC after this point, the SMC curve must cut the SAC curve from below at this minimum point.
Both SAC and SMC curves are U-shaped due to the law of variable proportions. The minimum point of SAC curve lies to the right of the minimum point of AVC curve.
Explanation
The textbook clearly states that 'SMC curve cuts the SAC curve from below at the minimum point of SAC.' The reasoning follows from the relationship between marginal and average values: as long as SAC is falling, SMC is less than SAC; when SAC is rising, SMC is greater than SAC. This same logic applies to the AVC-SMC relationship mentioned in the context.