The short-run average total cost (ATC) curve of a firm will tend to be U-shaped because
A) larger firms always have lower per-unit costs than smaller firms.
B) at small output rates, AFC will be high, while at large output rates, MC will be high.
C) diminishing returns will be present when output is small, while high AFC will push per-unit cost to high levels when output is large.
D) diseconomies of scale will be present at both small and large output rates.

Question

Quizplus · Accepted Answer

The U-shape of the ATC curve is due to high average fixed costs (AFC) at low output levels and increasing marginal costs (MC) at high output levels.

The Short-Run Average Total Cost (ATC) Curve of a Firm