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Production and cost — Economics STD 11 Commerce — Question

CBSE BoardEnglish MediumSTD 11 CommerceEconomicsProduction and cost3 Marks
Question
Why does the difference between ATC and AVC decrease with the increase in the level of output? Can these two be equal at some level of output? Explain.
OR
Why does the difference between ATC and AVC decreases with the increase in the level of output? Explain.
✓

Answer

ATC = AFC + AVC.
It implies that the difference between average total cost and average variable cost is equal to average fixed cost.
As the level of output increases average fixed cost goes on declining consequently, the difference between average total cost and average variable cost decreases with an increase in the level of output.
Average total cost and average variable cost cannot be equal at any level of output because average fixed cost will never be zero. Average fixed cost declines with increase in output but never becomes zero because total fixed cost is positive.

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