Average variable cost and average total costs get closer together as output increases because
A) diminishing returns set in.
B) average fixed costs decrease as output increases.
C) marginal costs decrease as output increases.
D) economies of scale become apparent.

Question

Quizplus · Accepted Answer

As output increases, the fixed costs (which do not change with the level of output) are spread over more units of production, causing the average fixed cost to decrease. Since average total cost is the sum of average variable cost and average fixed cost, as the average fixed cost decreases with increased output, the difference between average total cost and average variable cost narrows.

Average Variable Cost and Average Total Costs Get Closer Together