Question

Give reasons for the following:

ATC and AVC curves do not touch each other.

Answer 1

ATC and AVC curves do not touch each other because the difference between AC and AVC is AFC. AFC is obtained by dividing TFC by the quantity of output, and TFC remains the same at all levels of output, so AFC falls but never becomes zero. Thus, as output increases, AFC falls; the AC and AVC curves come closer together but do not meet or touch each other, because AFC cannot fall to zero.

ATC − AVC = AFC and

AFC = `"TFC"/"Output"`