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The following article will guide you to know why cost curve is “U” shaped. The addition of fixed and Variable Cost gives us total costs, which when divided by the output give us Average Costs in the short period. The nature of short period Average Cost Curve is ‘U’ shaped. To begin with, the Average Costs are high at low levels of ...
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Sep 8, 2024 · The U-shaped average cost curve is a graphical representation depicting the relationship between average cost per unit of output and the level of output for a firm in the short run. It explains how the average cost (comprising both fixed and variable costs) first decreases, reaches a minimum point, and then increases as production continues.
- Diagram of Marginal Cost
- Average Cost Curves
- Long Run Cost Curves
Because the short run marginal cost curve is sloped like this, mathematically the average cost curve will be U shaped. Initially, average costs fall. But, when marginal cost is above the average cost, then average cost starts to rise. Marginal cost always passes through the lowest point of the average cost curve.
ATC (Average Total Cost) = Total Cost / quantityAVC (Average Variable Cost) = Variable cost / QuantityAFC (Average Fixed Cost) = Fixed cost / QuantityThe long-run cost curves are u shaped for different reasons. It is due to economies of scale and diseconomies of scale. If a firm has high fixed costs, increasing output will lead to lower average costs. However, after a certain output, a firm may experience diseconomies of scale. This occurs where increased output leads to higher average costs. Fo...
Solution. In short run, Average Cost Curves are of U - shape. It means, in the beginning it falls and after reaching the minimum point it starts rising upward. It gets U - shape due to the following reasons. (i) On the Basis of AFC and AVC In the short run, since AC = AFC + AVC. Therefore, the behaviour of AC curve directly depends upon the ...
ISBN: 9781947172340. Short Answer. Step-by-step Solution. Chapter 7: Q33 (page 185) Average cost curves (except for average fixed cost) tend to be U-shaped, decreasing and then increasing. Marginal cost curves have the same shape, though this may be harder to see since most of the marginal cost curve is increasing.
The marginal cost line intersects the average cost line exactly at the bottom of the average cost curve—which occurs at a quantity of 72 and cost of $6.60 in Figure 2. The reason why the intersection occurs at this point is built into the economic meaning of marginal and average costs.
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Jul 20, 2024 · Learn everything about the U-shaped average cost curve, an essential concept in economics that explains the behavior of average costs in relation to different levels of output. Dive deep with key insights, related terms, FAQs, and an engaging quiz!
