Question

explain fully why the short run atc curve is u shaped that is falls then increases as more output is produced in the short run

Answer 1

In short run, the total cost is composed of fixed and variable cost (TC=FC+TVC). Fixed costs are those costs which do not vary with the output like rent, depreciation etc. Variable costs are those costs which vary with the output being produced like raw material costs.
With the increa

se in output, AFC(VC/Q) starts to decrease continuously but the AVC (VC/Q) starts to decrease initially because of economies of scale(marginal cost of output decreases), reaches a minimum and then starts to increase because of diseconomies of scale(marginal cost of output increases) forming the shape of AC a U- shape.

This best illustrated in the below table and graph

Q	FC	VC	TC	MC	AFC	AVC	ATC
0	10	0	10
1	10	10	20	10	10.00	10.00	20.00
2	10	19	29	9	5.00	9.50	14.50
3	10	25	35	6	3.33	8.33	11.67
4	10	29	39	4	2.50	7.25	9.75
5	10	33	43	4	2.00	6.60	8.60
6	10	39	49	6	1.67	6.50	8.17
7	10	47	57	8	1.43	6.71	8.14
8	10	57	67	10	1.25	7.13	8.38
9	10	70	80	13	1.11	7.78	8.89
10	10	85	95	15	1.00	8.50	9.50