Which of the following graphs best represents a typical average total cost (ATC) curve in the short run for a firm?

• A. A downward-sloping curve throughout
• B. A straight upward-sloping line
• C. A U-shaped curve, initially decreasing and then increasing as output rises
• D. A horizontal line

Answer: (C)

Verified step by step guidance

1. Understand that the Average Total Cost (ATC) curve represents the cost per unit of output, calculated as total cost divided by quantity produced: \(\text{ATC} = \frac{\text{Total Cost}}{Q}\).
2. Recall that in the short run, the ATC curve is typically U-shaped due to the law of diminishing marginal returns: initially, as output increases, average costs fall because fixed costs are spread over more units and efficiency improves.
3. Recognize that after a certain point, increasing production leads to higher average costs because variable inputs become less productive, causing the ATC to rise.
4. Eliminate options that do not reflect this behavior: a downward-sloping curve throughout ignores rising costs at higher output, a straight upward-sloping line ignores initial decreasing costs, and a horizontal line implies constant average costs regardless of output.
5. Conclude that the graph best representing the typical short-run ATC curve is the U-shaped curve, which first decreases and then increases as output rises.