Final answer:
The average total cost curve is U-shaped, starting high and decreasing before increasing again. This shape is determined by economies of scale and diseconomies of scale.
Step-by-step explanation:
The shape of the average total cost curve is U-shaped. It starts off high when the output level is low, decreases as output increases, and then eventually starts to increase again as output continues to increase. This U-shape is explained by the concepts of economies of scale and diseconomies of scale.
At low levels of output, the average total cost is high because the fixed costs are spread out over a small quantity of output. As output increases, the average total cost decreases due to economies of scale. This means that the firm benefits from producing more units, which leads to lower production costs per unit.
However, as output continues to increase beyond a certain point, the average total cost starts to increase again due to diseconomies of scale. This is because the firm may experience inefficiencies or increased costs as it becomes too large, resulting in higher average costs per unit.