The average total cost curve
A)is downward sloping at all levels of output
B)is downward sloping when marginal costs are decreasing and upward sloping when marginal costs are increasing
C)is upward sloping when marginal costs are decreasing and downward sloping when marginal costs are increasing
D)does not vary with output

Question

Quizplus · Accepted Answer

The average total cost curve is the total cost divided by the quantity of output produced. When marginal costs are decreasing, the additional cost of producing each unit of output is less than the average cost of all units produced so far, causing the average total cost to decrease. When marginal costs are increasing, the additional cost of producing each unit of output is greater than the average cost of all units produced so far, causing the average total cost to increase. Therefore, the average total cost curve is downward sloping when marginal costs are decreasing and upward sloping when marginal costs are increasing.

The Average Total Cost Curve