Question

The marginal-cost curve first declines and then increases because of

a) Increasing, then diminishing, marginal utility
b) The decline in the gap between ATC and AVC as output expands
c) Increasing, then diminishing, marginal returns
d) Constant marginal revenue

Answer 1

The shape of the marginal-cost curve is explained by increasing, then diminishing, marginal returns. Initially, additional inputs generate more output than previous units, but after a threshold, more inputs yield less additional output, increasing the marginal costs.

Step-by-step explanation:

The typical shape of the marginal-cost curve is due to what is known as increasing, then diminishing, marginal returns. Initially, as a firm increases production, it experiences increasing marginal returns because each additional unit of input (such as labor) contributes more to output than the previous unit, likely due to more efficient use of fixed assets like machinery and facilities. However, after a certain point, diminishing marginal returns set in, meaning that each additional unit of input adds less to output than the previous one, causing the marginal costs to rise with further production increases.

This pattern is a characteristic of the production process where initially the integration of additional inputs leads to a more than proportional increase in output (increasing returns), but over time, congestion, over-utilization of fixed inputs, or other factors make additional inputs less productive (diminishing returns).