Relationships Between ATC, AFC, and AVC Curves

Steps:

• ATC = AFC + AVC, so AVC = ATC - AFC; plot these to compare at specific outputs.
• AFC declines continuously as output rises due to fixed costs spreading over more units.
• AVC typically forms a U-shape, starting low, reaching a minimum, then rising.
• Identify points W, X, Y, Z on the output axis from the diagram to evaluate statements.

Why A is correct:

• At low output X, AVC (derived as ATC - AFC) is below AFC because fixed costs per unit are high while variable costs per unit remain low initially.

Why the others are wrong:

• B: At Y (higher output), TVC = AVC × Q exceeds TFC = AFC × Q since AVC approaches or exceeds AFC.
• C: Between W and Z, total costs (TC = ATC × Q) generally rise after initial fixed cost spreading, not fall continuously.
• D: Between W and Y, AVC rises from its initial low point toward the minimum, so it changes.

Final answer: A