How do average variable cost, average fixed cost, and marginal cost vary as production levels for a firm are increased?
Draw a curve for average fixed cost (AFC) as production increases, and explain why the curve continuously decreases.
Draw a curve for average variable cost (AVC) as production increases, and relate the curve shape to the property of diminishing marginal product (sometimes referred to as the law of diminishing marginal returns). Explain the relationship.
Draw a marginal cost curve (MC) as production increases. Is this curve related to the AFC, to the AVC, or to both as production increases? Why or why not?