Final answer:
The firm's short-run marginal cost increases due to the diminishing marginal product, which is the declining additional output from each additional unit of input after a certain point. Option E is correct answer.
Step-by-step explanation:
The question revolves around the concept of why a firm's short-run marginal cost will eventually increase with an increase in output. When Nipam's firm, which sells basketball apparel, increases its output, it's likely to experience an increase in marginal costs due to diminishing marginal product. This is an economic principle stating that as a company continues to invest more into a particular factor of production while keeping other factors constant, the additional output from each additional unit of input will eventually start to decrease.
This concept is different from diseconomies of scale, which occur when a firm is so large that long-run average costs start to increase. It is also distinct from inefficient production, which may be a constant issue unrelated to scale, and it is not necessarily related to the firm's need to break even or the effect of a lower product price on cost structures.
In summary, as Nipam's firm produces more basketball apparel, each additional unit of clothing will require more resources and time to produce than the unit before, because the efficiency of production begins to wane. Hence, the correct answer to the question is E. diminishing marginal product.