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The difference narrows. ATC is the sum of AVC and AFC.. Since AFC declines steadily as output rises, the difference between ATC and AVC must narrow steadily.

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Q: What happens to the difference between ATC and AVC as a firm's output expands?
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Explain why the AVC and ATC move closer together as output expands?

As output expands, fixed costs are spread out over a larger quantity of output, causing average fixed cost (AFC) to decrease. Since average total cost (ATC) is the sum of average variable cost (AVC) and AFC, and AFC is decreasing, ATC will also decrease. However, AVC tends to decrease at a slower rate than AFC, so the gap between AVC and ATC narrows as output expands.