Why does the difference between Average Total Cost (ATC) and Average V

1.	Why does the difference between Average Total Cost (ATC) and Average Variable Cost (AVC) decrease with increase in the level of output? Can these two be equal at some level of output? Explain.
Answer» Average cost is the sum of average fixed cost and average variable cost. Hence ATC (AC) = AFC + AVC So, ATC - AVC = AFC This shows that difference between ATC and AVC is equal to AFC. AFC is obtained by dividing total fixed cost by output, i.e. AFC=TFC / Q And total fixed cost (TFC) is constant. Therefore, with the increase in the level of output, AFC falls. Thus, the difference between ATC and AVC decreases with increase in output. No, ATC and AVC cannot be equal at any level of output as gap between them i.e. AFC can never be zero because TFC is constant and positive.

Why does the difference between Average Total Cost (ATC) and Average Variable Cost (AVC) decrease with increase in the level of output? Can these two be equal at some level of output? Explain.

Answer»

Average cost is the sum of average fixed cost and average variable cost.

Hence

ATC (AC) = AFC + AVC

So, ATC - AVC = AFC

This shows that difference between ATC and AVC is equal to AFC.

AFC is obtained by dividing total fixed cost by output, i.e. AFC=TFC / Q

And total fixed cost (TFC) is constant.

Therefore, with the increase in the level of output, AFC falls.

Thus, the difference between ATC and AVC decreases with increase in output.

No, ATC and AVC cannot be equal at any level of output as gap between them i.e.

AFC can never be zero because TFC is constant and positive.

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