Question

Consider average total cost and then choose the correct statement. A. Initially as output​ increases, average fixed cost and average variable cost​ increase, so average total cost increases and the ATC curve slopes upward. B. The ATC curve eventually slopes upward because average fixed cost eventually increases. C. The shape of the ATC curve combines the shapes of the TFC and TVC curves. D. An increase in output may increase or decrease average total cos

Answer 1

Answer: Option (D) is correct.

Explanation:

Correct option: An increase in output may increase or decrease average total cost.

When there is an increase in the level of output as a result average fixed cost decreases. Whereas average variable cost first decreases up to the point where marginal cost is lower than it and after that it increases when the marginal cost is greater than average variable cost.

Now, we are talking about the effects of increase in the level of output on average total cost. The Average total cost decreases in the starting up to the point where marginal cost is lower than ATC and after that it increases when the marginal cost is greater than average total cost.