As output increases,average total cost eventually rises because
A) average fixed cost increases at a faster rate than average variable cost.
B) average variable cost will eventually increase at a faster rate than that at which average fixed cost declines.
C) marginal cost is offset by fixed cost.
D) of a declining rate of increase in total cost.
E) increases in average total cost offset increases in average variable cost.

Question

Quizplus · Accepted Answer

As output increases, the fixed cost is spread over a larger quantity leading to a decline in average fixed cost. However, the increase in output may lead to diminishing returns and eventually result in the increase of the average variable cost. Thus, the eventual increase in average total cost is due to the increase in average variable cost at a faster rate than that at which average fixed cost declines.

As Output Increases,average Total Cost Eventually Rises Because