When a firm has to increase its output,average total costs will increase in the short run and then decrease in the long run,after the firm has time to add physical capital.

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In the short run, increasing output can lead to diminishing marginal returns and higher variable costs, causing average total costs to increase. However, in the long run, the firm can add physical capital and potentially experience economies of scale, leading to lower average total costs.

When a Firm Has to Increase Its Output,average Total Costs