Final answer:
The average total cost curve dips at first due to economies of scale in production. As firms increase their output in the short run, the fixed costs are spread over a larger quantity of output, reducing the average cost. However, as output continues to increase, the average total cost curve eventually increases due to diminishing returns.
Step-by-step explanation:
The average total cost curve dips at first because of economies of scale in production. In the short run, firms can lower their average cost by increasing their output, which leads to a dip in the average total cost curve. This is because fixed costs are spread over a larger quantity of output, reducing the average cost. However, as output continues to increase, the average total cost curve eventually increases due to diminishing returns.