AVC reaches a minimum before ATC in the short run. ATC and AVC both initially decrease as output increases due to the spreading of fixed costs over a larger output, but as output continues to increase, AVC will begin to increase due to diminishing marginal returns to the variable inputs, causing it to reach a minimum before ATC.

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As Output Increases

Question 87

Multiple Choice

As output increases,

A) ATC reaches a minimum before AVC.
B) AVC reaches a minimum before ATC.
C) ATC and AVC reach a minimum at the same output.
D) there is no way to determine whether ATC or AVC will reach a minimum first.

Correct Answer: