Why does the difference between ATC and AVC decrease with an increase in the level of output? Can these two be equal at some level of output? Explain.

Explanation

As we increase the level of output, the difference between ATC and AVC decreases because ATC = AFC + AVC and Total Fixed Cost remain constant at all levels of output, but with rise in level of output, AFC decreases. That's why the difference between ATC and AVC decreases with rise in level of output.The difference between the average total cost (ATC or AC) and the average variable cost (AVC) lies due to the average fixed cost incurred by the firm. Thus, ATC and AVC can never be equal at any level of output.