Why is average total cost often U-shaped?

• A. At low output ATC falls as fixed costs are spread over more units, while at high output diminishing marginal returns raise variable cost per unit, causing ATC to rise.
• B. Because average variable cost alone is U-shaped and average total cost exactly mirrors the shape of average variable cost.
• C. Firms face rising fixed costs at first and then decreasing variable costs as output increases, creating the U-shape.
• D. Technological progress lowers costs at low output but later causes costs to rise as capital becomes obsolete, producing a U-shape.

Answer: (A)