Relationship between ATC and AVC
The relationship between ATC and AVC can be presented as follows:
In the above figure, we can see that ATC and AVC curve are both ‘U’ shaped. AVC is the basis for ATC. The reasons for ‘U’ shaped nature of both curves is because of the operation of the law of variable proportion in the short run. The relationship between ATC and AVC can be summarized as:
- Both the curves are ‘U’ shaped.
- AVC is the part of ATC, therefore ATC is above AVC.
- In the beginning, both ATC and AVC decline to a minimum point and rise thereafter.
- The minimum cost point of AVC is to the left of the minimum cost point of ATC I.e. A and B respectively.