Question

The shape of the AVC curve arises because of​ _______. A. constant returns B. increasing returns initially and eventually diminishing returns C. increasing returns as output increases D. falling average fixed cost

Answer 1

B. increasing returns initially and eventually diminishing returns.

Step-by-step explanation:

Average variable cost initially, is high and tends to reduce with increasing number of units and on the long run then it ultimately tends to decrease.

Initially the returns are high on per unit, after that the company's return per unit decreases and the cost per unit in terms of variable cost also increases.

Average variable cost is less in the curve in the short middle term, then it tends to rise, as because variable cost starts increasing.

The company shall wisely choose to stop the production when the variable cost is increasing with a higher percentage than the decreasing revenue.