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
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As we look at the effect of the marginal cost on the average total cost and the average variable cost, the marginal cost curve pulls the other curves (ATC and AVC) closer as the level of output increases by one unit at a time. Assuming this increase continues on for an infinite amount, the curves will eventually be brought together as the output increases. With all curves trending to an upward slope as you continue to increase output, a meeting of the U-shaped curves is inevitable. The upward slope is indicative of the law of diminishing marginal productivity.
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.
