Which of the following is true about the distances between average variable cost and average total cost when graphed? As output increases the difference between them gets smaller As output increases the difference between them gets larger Is equal to average total cost at all levels of output Is zero at all levels of output A and C are both correct

When graphed, average variable cost (AVC) and average total cost (ATC) behave in a fascinating way! As output increases, the difference between average total cost and average variable cost gets larger because ATC includes both average variable costs and average fixed costs. Hence, while AVC can decrease with increased production due to economies of scale, ATC on the other hand keeps adding fixed costs, expanding that gap! In practice, understanding this difference can help businesses make better decisions about production levels. If a company identifies that their AVC is decreasing but ATC is rising, they may want to reassess their pricing strategy or production efficiency. A clear grasp of these concepts can lead to more informed operational choices, ultimately aiding in maximizing profit while minimizing costs.