Home » Why is ATC a U-shaped curve?

# Why is ATC a U-shaped curve?

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

Definitions:

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.

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.

Therefore:

Total Cost/Output = Total Variable Cost/Output + Total Fixed Cost/Output

Hence we get:

ATC= Average Fixed Costs(AFC) + Average Variable Costs(AVC)

Lets look at the Graph:
X-axis: Output
Y-Axis: Costs
graph{x^2 + 4 [-32.48, 32.46, -16.24, 16.24]}

Explanation:

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.

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.

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.

## Calculate the price of your order

550 words
We'll send you the first draft for approval by September 11, 2018 at 10:52 AM
Total price:
\$26
The price is based on these factors:
Number of pages
Urgency
Basic features
• Free title page and bibliography
• Unlimited revisions
• Plagiarism-free guarantee
• Money-back guarantee
On-demand options
• Writer’s samples
• Part-by-part delivery
• Overnight delivery
• Copies of used sources
Paper format
• 275 words per page
• 12 pt Arial/Times New Roman
• Double line spacing
• Any citation style (APA, MLA, Chicago/Turabian, Harvard)

# Our guarantees

Delivering a high-quality product at a reasonable price is not enough anymore.
That’s why we have developed 5 beneficial guarantees that will make your experience with our service enjoyable, easy, and safe.

### Money-back guarantee

You have to be 100% sure of the quality of your product to give a money-back guarantee. This describes us perfectly. Make sure that this guarantee is totally transparent.

### Zero-plagiarism guarantee

Each paper is composed from scratch, according to your instructions. It is then checked by our plagiarism-detection software. There is no gap where plagiarism could squeeze in.

### Free-revision policy

Thanks to our free revisions, there is no way for you to be unsatisfied. We will work on your paper until you are completely happy with the result.