A typical average cost curve will have a U-shape, because fixed costs are all incurred before any production takes place and marginal costs are typically increasing, because of diminishing marginal productivity. In this "typical '' case, for low levels of production marginal costs are below average costs, so average costs are decreasing as quantity increases. An increasing marginal cost curve will intersect a U-shaped average cost curve at its minimum, after which point the average cost curve begins to slope upward. For further increases in production beyond this minimum, marginal cost is above average costs, so average costs are increasing as quantity increases. An example of this typical case would be a factory designed to produce a specific quantity of widgets per period: below a certain production level, average cost is higher due to under - utilized equipment, while above that level, production bottlenecks increase the average cost.
if marginal costs rises above average costs average costs must
increasing as quantity increases