The average total cost curve has a U shape because the ______ effect is dominant at low levels of output, and the _____ effect is dominant at high levels of output.
A) diminishing returns; spreading
B) spreading; diminishing returns
C) comparative advantage; absolute advantage
D) absolute advantage; comparative advantage

Question

Quizplus · Accepted Answer

The average total cost curve is U-shaped because at low levels of output, fixed costs are spread over more units, reducing average costs (spreading effect). At high levels of output, diminishing returns set in, increasing average costs.

The Average Total Cost Curve Has a U Shape Because