If you increase production to an infinitely large level, the average variable cost and the average total cost will merge. Why?
Economics 2030 LSU discussion Forum
If you increase production to an infinitely large level, the average variable cost and the average total cost will merge. Why?
The average variable cost is calculated by dividing the variable costs by the output or quantity that has been produced. This factor forces the ATC and AVC U shaped curves to move closer to each other as the quantity continues to increase. The increase in AVC after a certain point is indirectly related to the law of diminishing marginal returns. The law states that at some point, the additional cost incurred to produce one more unit is greater than the additional revenue received.
