Short-run average variable cost behaves as it does because of the Law of Diminishing Returns, and short-run average fixed cost behaves as it does because of the Law of Supply.

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Short-run average variable cost behaves as it does primarily due to the Law of Diminishing Returns, which states that adding more of one factor of production, while holding others constant, will at some point yield lower per-unit returns. However, short-run average fixed cost behaves as it does because it is spread over varying levels of output; it decreases as output increases because the total fixed cost is distributed over more units, not because of the Law of Supply, which relates to the quantity supplied at different prices.

Short-Run Average Variable Cost Behaves as It Does Because of the Law