Question

What is the shape of the AC curve?

Explain the shape of AC curve.

Answer 1

AC curve is U-shaped.

Answer 2

The Average Cost (AC) curve is typically U-shaped.

1. Falling Part of the Curve:
   • In the beginning, as production increases, average cost decreases.
   • This happens because fixed costs (like rent or machinery) are spread over more units.
   • Also, efficiency improves due to better use of resources.
2. Minimum Point:
   • At a certain level of production, average cost is at its lowest.
   • This is the most efficient point of production.
3. Rising Part of the Curve:
   • After this point, average cost starts increasing.
   • This happens because of:
     1. Overuse of resources
     2. Inefficiencies
     3. Higher variable costs (e.g., labor, raw materials)