as output of a firm increases, the difference between the firm’s average total cost and its average variable cost gets smaller because the firm’s

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28-10-2021
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as output of a firm increases, the difference between the firm’s average total cost and its average variable cost gets smaller because the firm’s

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Martebi Martebi · Answer 1 · 2021-11-03T11:19:55+01:00

The economies of scale is often known as a scenario where long run average cost decreases as the firm's output increases. As output of a firm increases, the difference between the firm's average total cost and its average variable cost gets smaller because the firm's

average fixed cost is decreasing.

When there is an increase in output, the average total cost and average variable cost does fall and may not be equal for any level of output.

Therefore, as production reaches the highest level, ATC and AVC will have to be more closer.

Conclusively, In the average cost calculation, the rise in the numerator of total costs is small when related to the rise in the denominator of quantity produced and as output increases, the average cost begins to rise.

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