Why does the average total cost slope upward at the end?

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The average total cost (ATC) curve slopes upwards at the end because of the law of diminishing marginal returns.  At first, as production increases, a firm will become more efficient at producing a given good.  This will cause its ATC to drop.  However, at some point, the law of diminishing marginal returns comes into play and the ATC starts to increase once again.

In the short run, this happens because, at some point, a firm cannot work as efficiently when it tries to produce a larger quantity.  Let us imagine that I own a restaurant with a fixed kitchen size and fixed appliances.  I start out small, with only one or two people working...

(The entire section contains 363 words.)

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