Average Cost Curves

Average Cost (AC) curves represent how much, on average, it costs a company to produce each unit of output at different production levels. It is calculated by dividing total cost by the number of units produced. Typically, the curve slopes downward initially, showing that increasing production spreads fixed costs over more units, reducing average cost. After a certain point, it slopes upward due to diminishing efficiencies and higher variable costs, indicating increasing average costs. This curve helps businesses identify the most efficient production levels and understand how costs change with output.