State the reason behind U-shaped nature of AVC curve
Answers
The nature 'U' shaped short-run Average Cost curve can be attributed to the law of variable proportions. ... Thus, the Average Costs of the firms continue to fall as output increases because it operates under the increasing returns due to various internal economies.
It's a U-shaped curve. Initially, the variable cost per unit of output decreases as output increases. ... After the low, the variable cost per unit of output starts to increase. The increase in AVC after a certain point is indirectly related to the law of diminishing marginal returns
The reason behind U-shaped curve nature of AVC curve is because, as the output and productivity increases of business, the mean value gets decreased, but the output of that particular company increases, because of several internal business processes, working inside the firm causes such thing.
The variable cost of per unit of a certain product decreases, when in the U-shaped curve, productivity gets enhanced. Hence the AVC can be said that, there are some sort of close relation between law of diminishing marginal returns and AVC.