Describe the factors which cause average costs to fall in the short run.

Average Fixed Costs (AFC) are spread over a continually larger number of units, causing the Average Total Cost (ATC) to fall.

Additionally, the Average Variable Cost (AVC) falls initially due to increasing returns to the variable factor. This decrease in AVC is due to increased specialisation and division of labor, which enhances efficiency.

Moreover, businesses often receive discounts on materials as they purchase larger quantities, further reducing costs.

In the short run, at least one factor of production is fixed, which also contributes to the initial reduction in average costs as output increases.