-The U-shaped average total cost curve is
A) a result of constant marginal returns.
B) a result of firms' wanting to find the output level where cost is at its minimum.
C) a result of increasing marginal returns.
D) unrealistic because average total cost always increases as output increases.
E) the result of average fixed cost falling and decreasing marginal returns as output increases.

Question

-The U-shaped average total cost curve is
A) a result of constant marginal returns. 
B) a result of firms' wanting to find the output level where cost is at its minimum. 
C) a result of increasing marginal returns. 
D) unrealistic because average total cost always increases as output increases. 
E) the result of average fixed cost falling and decreasing marginal returns as output increases.

Quizplus · Accepted Answer

The U-shaped average total cost curve reflects the initial decrease in average total cost as output increases due to spreading fixed costs over more units (decreasing average fixed cost) and possibly benefiting from increasing marginal returns. As production continues to increase, however, the firm experiences decreasing marginal returns, where additional units of output require more and more input, causing the average total cost to increase. This combination of effects results in the U-shape.

-The U-Shaped Average Total Cost Curve Is