output is at the minimum point of the ATC curve, which is an output of
about 107 in this example.
Part (ii) of Figure 7-2 plots the average cost curves and the marginal
cost curve. Notice that the MC curve cuts the ATC curve and the AVC
curve at their lowest points. This is another example of the relationship
between a marginal and an average curve. The ATC and AVC curves slope
downward whenever the MC curve is below them; they slope upward
whenever the MC curve is above them. Now let’s consider the various
curves in a little more detail.
The AFC, AVC, and ATC Curves
In part (ii) of Figure 7-2 , the average fixed cost (AFC) curve is steadily
declining as output rises. Since there is a given amount of capital with a
total fixed cost of $100, increases in the level of output lead to a steadily
declining fixed cost per unit of output. This is the phenomenon of
spreading overhead.
The average variable cost (AVC) curve shows the variable cost per unit of
output. It declines as output rises, reaching a minimum at 98 units of
output. As output increases above this level, AVC rises.
Since average total cost (ATC) is simply the sum of AFC and AVC, it
follows that the ATC curve is derived geometrically by vertically adding
the AFC and AVC curves. That is, for each level of output, the point on the
ATC curve is derived by adding together the values of AFC and AVC. The