Why does the average total cost continue to fall even after the average variable cost has begun to rise?

Total cost is the sum of fixed cost and variable cost, thus average total cost is the sum of average variable cost and average fixed cost, i.e.,

• average total cost = average variable cost + average fixed cost

Since fixed cost is the same regardless of how much is produced, average fixed cost will fall with the quantity of production. Therefore, even if average variable cost begins to rise, as long as average fixed cost falls more than the rise in average variable cost, average total cost will still fall.