For the average total cost curve of a firm with economies of scale, what happens to costs as output increases?

Question

Costs initially go down and then go up.

Costs initially go up and then go down.

Costs go up.

Costs go down.

Answer 1

For a firm with economies of scale, the average total cost (ATC) curve typically decreases as output increases. This occurs because, as production increases, the firm can spread fixed costs over a larger number of units and may also experience efficiencies in production. Therefore, the correct answer is:

Costs go down.