Answer
The ATC curve of a firm is a summation of its average fixed cost and its average variable cost. In the short run, the average fixed cost always declines as output rises because the fixed cost is spread over a larger number of units; and the average variable cost typically rises as output increases, because of diminishing marginal product.
Work Step by Step
In the short run the average total cost curve of the firm is U-shaped. However, in the long run, the average total cost curve of the firm is actually its variable costs itself.