ECONOMICS

Detailed explanation-1: -After the optimum point, with increase in output, the economies are overweighted by the diseconomies which result the AC curve to increase. Thus AC curve gets U-shaped.

Detailed explanation-2: -A typical average cost curve has a U-shape, because fixed costs are all incurred before any production takes place and marginal costs are typically increasing, because of diminishing marginal productivity.

Detailed explanation-3: -AC curve is U-shaped in accordance with the law of variable proportions: it tends to fall owing to increasing returns to a factor, it tends to stabilise owing to constant returns to a factor, and it tends to rise owing to diminishing returns to a factor.

Detailed explanation-4: -But when diminishing returns sets in due to difficulties of management and limitations of plants and space the variable costs and therefore average costs start increasing. The lower end of the curve turns up and gives it a U shape. That is why average cost curves are U shaped.

Detailed explanation-5: -Average total cost (ATC) is calculated by dividing total cost by the total quantity produced. The average total cost curve is typically U-shaped.