Explain why average total cost (ATC) curve of perfect competition firm is U-shaped in the in short run and long run

Explain why average total cost (ATC) curve of perfect competition firm is U-shaped in the short run

In the short run, ATC curve is U-shaped because initially at A, ATC is high because fixed costs are all incurred before any production takes place, it decreases to minimum at B due to the law of variable proportions since ATC = AFC + AVC and after ATC increases, because of diminishing marginal productivity.

Explain why average total cost (ATC) curve of perfect competition firm is U-shaped in the long run

In the long run, ATC curve is U-shaped; i.e. ATC decreases because of economies of scale and then increases because of diseconomies of scale