Average total cost (ATC) can be found by adding average fixed costs (AFC) and average variable costs (AVC). The ATC curve is also 'U' shaped because it takes its shape from the AVC curve, with the upturn reflecting the onset of diminishing returns to the variable factor.

Why is the average cost curve U shaped?

The average cost curve is u-shaped because costs reduce as you increase the output, up to a certain optimal point. From there, the costs begin rising as you increase the output. ... As you increase the output and variable costs, the average cost reduces because the output adds value to the consumer.

What is the causes of ATC U shaped in the short run?

Short run cost curves tend to be U shaped because of diminishing returns. In the short run, capital is fixed. After a certain point, increasing extra workers leads to declining productivity. Therefore, as you employ more workers the marginal cost increases.