Why there is difference between ATC and AVC with an increase in level of of output ? Can these two be equal at the same 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. We know that the cost of producing per unit of output is known as average cost. This average cost is the sum of average fixed cost and average variable cost. Herein, the average cost refers to the average of the total fixed cost that a firm incurs when it acquires the services of the fixed factors of production such as building, machinery, etc. Thus, the difference between ATC and AVC is AFC. However, as AFC declines with the increase in the output level, the difference between ATC and AVC becomes smaller and smaller.
An important point to note here is that although AFC keeps declining with increasing output level, but it can never become zero. This is because AFC is a rectangular hyperbola. That is, it can never touch x-axis. Thus, ATC and AVC can never be equal at any level of output.
For a better understanding of this topic you can also refer to our study material. You can find this topic in Microeconomics- Production and Costs (Lesson 5) of our study material.