Choose the statement that is correct. A. The MC curve intersects the AFC, AVC, and ATC curves at their minimums. B. Initially
as output increases, average variable cost decreases, so average total cost decreases and the ATC curve slopes downward. Average fixed cost remains unchanged. C. The ATC curve eventually slopes upward because average variable cost eventually increases. D. An increase in output always increases average total cost.
1 answer:
Answer: C. The ATC curve eventually slopes upward because average variable cost eventually increases
Explanation:
The Law of Diminishing Marginal Returns causes the Average Total Cost curve to eventually slope upwards because the Average Variable Cost will increase.
Why?
At first, with production increasing, a firm will be very efficient at producing a certain good thereby driving the cost down per unit. As time goes on however, the law of Diminishing Marginal Returns comes into play as more is invested into the business. The cost per unit will therefore rise which will lead to the ATC curve going upwards.
I have included a simple graph to illustrate.
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