Notice how the average fixed costs decline as the fixed costs are "spread over more units of output." For large outputs, however, average variable costs rise pretty steeply. The idea is that with a limited capital plant and thus limited productive capacity -- in the short run -- costs would rise much more than proportionately to output as output goes beyond "capacity." The average total cost, dominated by fixed costs for small output, declines at first, but as output increases, fixed costs become less important for the total cost and variable costs become more important, and so, after reaching a minimum, average total cost begins to rise more and more steeply.
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