Question

3) Bob Edwards owns a bagel shop. Bob hires an economist who assesses the shape of the bagel shop's average total cost (ATC) curve as a function of the number of bagels produced. The results indicate a U-shaped average total cost curve. Bob's economist explains that ATC is U-shaped for two reasons. What are those two reasons? Explain your answer carefully.

Answer 1

The ATC curve in the market is U shaped because of the variable return and average variable cost .

a) when the resurces are employed in the market first they have a higher return in the market, that makes the shape of curve as downward sloping, the as the output in the market rises the firm enters a constant return and then diminishing return which makes the curve slopes move upward.

b) it take the shape of the average variable cost in the market.