The short-run average total cost curve is U-shaped because
A)average fixed costs decline continuously as output increases.
B)of increasing and diminishing returns.
C)of economies and diseconomies of scale.
D)minimum efficient scale is encountered.

Question

Quizplus · Accepted Answer

The U-shape of the short-run average total cost curve is primarily due to increasing and then diminishing returns. Initially, as production increases, firms experience increasing returns due to more efficient use of fixed inputs, leading to decreasing average costs. However, after a certain point, diminishing returns set in as the fixed inputs become overused, causing average costs to increase.

The Short-Run Average Total Cost Curve Is U-Shaped Because