Question

Why is the Average Variable Cost (AVC) curve U-shaped?

Options

• Because fixed cost keeps increasing

• Due to first falling then rising efficiency in using variable inputs

• Because total cost always remains constant

• Because output always decreases

Answer 1

Due to first falling then rising efficiency in using variable inputs

Explanation: 

AVC falls at first as efficiency improves, then rises when too many variable inputs cause diminishing returns, giving a U-shape.