Why are the cost per unit costs for a business drawn u-shpaed?

Question

Why are the cost per unit costs for a business drawn u-shpaed?

Answer 1

B'coz it's classical economics then we assume all the three laws of returns to variable factor hold----- and return and costs have inverse direction( Miss Rani Mukherjee style answers me a gr8 fan of them)........ if u want class 8 geometry well then avg fixed cost curve represents a rectangular hyperbola asymptotic to the origin however the avg variable costs r u shaped due to the u shape of marginal cost curve ( due to classical economics) and this gives shape to the A.T.C.  or per unit cost as in management acc thinking of .......... again!

Answer 2

It has to do with how the cost are distributed through production.  There are two kinds of cost:  fixed and variable.  In the beginning, fixed cost are the majority of the cost, AFC declines with more production the reason this is true because it is common sense...50fc for 1 unit afc=50, for 2 units=25 for 3units 16.66...afc is declining.  But then the more you produce, the more variable cost goes up because of the law of diminishing returns.  Maybe 1 worker can produce 10 pizza's, 2 workers may be able to produce 20, but you only have so many ovens so that 1 million workers won't produce 10 million pizza's.  AVC increases for this very reason and when AVC increases more than AFC decreases, ATC increases...those the upward slop of the U shape (dis economies of scale).