Question

Why does the difference between ATC and AVC curves become smaller and smaller as output increases?

Answer 1

• As output increases, the difference between Average Total Cost (ATC) and Average Variable Cost (AVC) decreases due to the constant decline in Average Fixed Cost (AFC).
• ATC = AVC + AFC
• As output increases, the AFC (TFC ÷ Output) decreases. Because AFC is the only difference between ATC and AVC, the difference also narrows.