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

a. costs go down.

b. costs initially go down and then go up.

c. costs go up.

d. costs initially go up and then go down.

The answer is: A. cost go down

Ever goods produced by companies consist of both variable cost  and fixed cost. Variable costs will be depended on how much goods produced (such as raw materials)  while fixed cost will remain the same regardless of how many goods you produced (such as price of machinery)

As output increases, companies will reach production efficiency since they can utilize their fixed costs into its maximum value (the cost of machine will be the same regardless you use it or not) . This will cause the average cost will go down.

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