Total Cost Curve Shape Reveals Cost Structure

Steps:

• Identify the total cost (TC) curve's intercept and slope from the diagram.
• Note that TC = fixed costs (FC) + variable costs (VC); a positive y-intercept shows FC > 0.
• Observe if the curve is linear (constant slope), indicating VC rises proportionally with output Q.
• Conclude average variable cost (AVC = VC/Q) is constant if slope is steady.

Why D is correct:

• A linear TC curve with constant positive slope means VC = kQ (k constant), so AVC = k, constant by definition.

Why the others are wrong:

• A: Positive intercept shows fixed costs exist.
• B: Upward slope shows variable costs increase with output.
• C: Average fixed cost (AFC = FC/Q) always decreases with Q, never increases.

Final answer: D