Final answer:
The average total cost (ATC) is calculated by dividing the total cost by the total quantity produced, yielding a U-shaped curve. The average variable cost (AVC) also has a U-shaped curve but lies below the ATC curve. Finally, the marginal cost (MC) is an upward-sloping curve, reflecting the additional cost of producing one more unit of output.
Step-by-step explanation:
To find the average total cost (ATC) at any output level Q, total cost is divided by the total quantity produced. This calculation gives us how much it costs on average to produce each unit of output. The average total cost curve typically appears U-shaped on a graph, indicating that ATC tends to decrease as output increases up to a certain point, due to economies of scale, before it starts to increase due to diseconomies of scale.
It's also important to note the relationship between the ATC and the average variable cost (AVC). While ATC includes both fixed and variable costs, AVC only accounts for the variable costs associated with production. The AVC is also typically U-shaped and lies below the ATC curve since it does not include fixed costs. Lastly, the marginal cost (MC), an upward-sloping curve, is found by taking the change in total cost and dividing by the change in output.
If a firm's ATC is lower than the market price, it indicates that the firm is making a profit on its products, as each unit is being sold for more than it costs to produce.