Which of the following curves are U-shaped?
i.average variable cost curve
ii.average fixed cost curve
iii.average total cost curve
A) i and ii
B) i and iii
C) ii and iii
D) i, ii, and iii
E) Only ii

Question

Quizplus · Accepted Answer

The average variable cost (AVC) curve may initially decrease as output increases due to the spreading of fixed costs over a larger output, but eventually increases as diminishing marginal returns set in. The average fixed cost (AFC) curve, on the other hand, continuously decreases as output increases since fixed costs are spread over a larger output. The average total cost (ATC) curve is U-shaped due to the fact that initially, as output increases, the spreading of fixed costs over a larger output leads to a decrease in ATC. Eventually, the diminishing marginal returns set in, causing the AVC to increase, which in turn causes the ATC to increase beyond the minimum point.

Which of the Following Curves Are U-Shaped