If fixed costs are 1000 and the marginal cost to produce one

If fixed costs are $1000 and the marginal cost to produce one more unit is $10 per unit, then the Average Total Cost curve is U-shaped

Solution

False.

Total cost, TC = Fixed cost + Total variable cost

TC = $1,000 + $10 x Q [Q: Quantity] = $1,000 + 10Q

ATC = TC / Q = $1,000 / Q + $10

As Q increases, (1,000 / Q) decreases and so, ATC is downward sloping for all Q and not U-shaped.