Why average cost curve is U-shaped?
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Average total cost (ATC) can be found by adding average fixed costs (AFC) and average variable costs (AVC). The ATC curve is also 'U' shaped because it takes its shape from the AVC curve, with the upturn reflecting the onset of diminishing returns to the variable factor.
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Answer:The AC curve is u shaped due to law of variable proportions. This state that as more and more units of a variable factor are applied to the same fixed factor, the total product would increase but eventually came down. Therefore, initially cost is less and eventually it is more. Generally, price and output has inverse relationship.
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