The typical average cost curve in a competitive market is:
A)an upward sloping straight line because fixed costs are constant, and variable costs are increasing with the level of
Output.
B)U-shaped because the firm's fixed costs are first spread over greater quantities, but then increasingly greater quantities will
Create production capacity constraints.
C)downward sloping until fixed costs are eliminated and then it becomes a horizontal line.
D)U-shaped because increasing quantities of output cause a decrease in fixed costs but an offsetting increase in variable
Costs.

Question

Quizplus · Accepted Answer

The typical average cost curve in a competitive market is U-shaped because initially, as output increases, the firm can spread its fixed costs over a greater quantity of output, leading to lower average costs. However, after a certain point, the firm may face production capacity constraints, leading to higher average costs due to the need for additional variable resources.

The Typical Average Cost Curve in a Competitive Market Is