Average total cost falls as fixed costs spread over more output

Steps:

• Compute total cost (TC) for each output: TC = fixed costs ($20) + total variable costs (TVC).
• Calculate average total cost (ATC): ATC = TC / output (Q).
• For Q=10: ATC = (20+40)/10 = 6; Q=20: (20+60)/20 = 4; Q=30: (20+80)/30 ≈ 3.33; Q=40: (20+100)/40 = 3.
• ATC values (6, 4, 3.33, 3) decrease continuously.

Why A is correct:

• ATC = (fixed + variable costs)/Q; here, it falls continuously as fixed costs spread over rising output while average variable cost also declines.

Why the others are wrong:

• B: ATC never rises in this range.
• C: ATC falls throughout, with no rise.
• D: ATC decreases, not increases.

Final answer: A