In Figure 7.4, when marginal cost equals to average cost: Figure 7.4 Graph-Three U-shaped curves; one U-shaped curve is below another, and the third U-shaped curve, which is further below the previous two, intersects the previous two at their lowest point In Figure 7.4, when marginal cost equals to average cost: average cost increases. average cost decreases. average cost is below marginal cost. average cost is at its lowest point