Multiple Choice
A short-run production function assumes that
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10. The Costs of Production
Average Total Cost: Short Run and Long Run
Multiple Choice
Which of the following best describes the shape of the average total cost (ATC) curve in the short run?
A
U-shaped due to initially decreasing and then increasing marginal costs
B
Perfectly horizontal, indicating constant average total cost
C
Upward sloping throughout due to diseconomies of scale
D
Downward sloping throughout due to economies of scale
Verified step by step guidance1
Recall that the Average Total Cost (ATC) curve represents the cost per unit of output, combining both average fixed costs and average variable costs.
Understand that in the short run, fixed costs remain constant, so the shape of the ATC curve is influenced mainly by variable costs and how they change with output.
Recognize that initially, as production increases, average total costs tend to decrease due to spreading fixed costs over more units and increasing efficiency (economies of scale).
After a certain point, marginal costs start to increase because of diminishing marginal returns, causing the average total cost to rise as output continues to increase.
Therefore, the ATC curve in the short run is typically U-shaped, reflecting the initial decrease and subsequent increase in costs as output changes.
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