Key Components:<\/b><\/p>\n
In order to understand why the ATC i.e. the Average Total Cost Curve in U-shaped, we need to look at its key components. <\/p>\n
Total Cost = Total Variable Cost + Total Fixed Cost<\/p>\n
TC = TVC + TFC<\/p>\n
Definitions:<\/b><\/p>\n
Variable Cost refers to those costs which increase along with an increase in output. Example: Raw Materials, Labour i.e. if you want to produce more then you need more raw materials and labour.<\/p>\n
Fixed Costs refer to those costs which do not change along with an increase in output.Example: Rent of Factory i.e. irrespective of how much you produce, the rent will stay the same.<\/p>\n
Therefore:<\/b><\/p>\n
Total Cost\/Output = Total Variable Cost\/Output + Total Fixed Cost\/Output<\/p>\n
Hence we get:<\/p>\n
ATC= Average Fixed Costs(AFC) + Average Variable Costs(AVC)<\/p>\n
Lets look at the Graph: X-axis: Output Y-Axis: Costs graph{x^2 + 4 [-32.48, 32.46, -16.24, 16.24]}<\/b><\/p>\n
Explanation:<\/b><\/p>\n
As Output increases the total variable costs increases and hence the AVC is also increasing , BUT the total fixed costs remains the same, hence the AFC is falling.<\/p>\n
Since the ATC = AFC+ AVC and one component is falling and the other is rising, the direction in which ATC moves will depend on which component is more dominant. <\/p>\n
The downward slopping portion of the U-Shaped curve corresonds to the part where AFC is dominant and hence ATC is falling but eventually AVC becomes dominant and ATC starts to rise.<\/p>\n","protected":false},"excerpt":{"rendered":"
Key Components: In order to understand why the ATC i.e. the Average Total Cost Curve in U-shaped, we need to look at its key components. Total Cost = Total Variable Cost + Total Fixed Cost TC = TVC + TFC Read More …<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-174177","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/174177","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/comments?post=174177"}],"version-history":[{"count":0,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/posts\/174177\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/media?parent=174177"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/categories?post=174177"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.benedictsol.com\/blogs\/wp-json\/wp\/v2\/tags?post=174177"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}