Which type of cost decreases as production increases, up to a point?

The correct answer is average total costs. As production increases, the average total cost, which is calculated by dividing total costs by the quantity of output produced, tends to decrease initially. This decrease occurs due to the spreading of fixed costs over a larger number of units produced. Fixed costs remain constant regardless of the level of production, so as more units are produced, those fixed costs are allocated to each unit, reducing the average total cost associated with each one.

This trend continues until the production reaches a certain level where the efficiencies of scale are maximized. After this point, if production continues to increase, average total costs may begin to level off or even rise again due to factors such as increased variable costs or inefficiencies in production.

Other types of costs, such as marginal costs and variable costs, do behave differently. Marginal costs can fluctuate based on the specifics of production changes and do not inherently decrease with increased production. Variable costs, while they may increase proportionally with output, do not fit the criteria of decreasing average total costs as production rises. Fixed costs remain constant and do not decrease with an increase in production. Thus, average total costs are the type of cost that decreases with increasing production, at least up to a certain point.