Which of the following short-run cost curves generally declines,then rises as output is increased?
A) average fixed cost and average variable cost
B) average variable cost and average total cost
C) average total cost and average fixed cost
D) average fixed cost only
E) average variable cost only

Question

Quizplus · Accepted Answer

The shape of the average variable cost curve is U-shaped, meaning that it declines initially due to increasing returns to the variable inputs, then rises due to diminishing returns to the variable inputs. The average total cost curve will also have a U-shape because it is the sum of the average fixed cost curve (which continually declines as output increases due to spreading fixed costs over a larger output) and the U-shaped average variable cost curve. Therefore, the correct choice is B.

Which of the Following Short-Run Cost Curves Generally Declines,then Rises