Both average total cost and average variable cost initially reduces with an increase in output. After they have reached their lowest or minimum, they start to rise again as the output increases.
The relationship between average total cost and average variable cost is that the marginal cost curve cuts both curves at their minimum prices or fees. As the marginal cost decreases, the variable cost decreases. Therefore the average total cost decreases and vice versa.
When average cost increases, the company enjoys economies of scale, and when it decreases, the firm suffers dis-economies of size
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