Final answer:
The term structure of interest rates typically has a normal shape, but it can vary. A rise in the supply of money in the financial market can lead to a decline in interest rates. Average and Marginal Cost curves are U-shaped due to economies of scale and the law of diminishing returns.
Step-by-step explanation:
The term structure of interest rates, also known as the yield curve, typically has a normal shape. This means that longer-term debt instruments generally have higher yields compared to shorter-term ones due to risks associated with time, such as inflation and interest rate uncertainty. However, the shape of the curve can change based on economic conditions. For instance, an inverted yield curve may signal economic downturns, while a flat curve suggests uncertainty or economic transition.
In general, a change in the financial market that would lead to a decline in interest rates is a rise in the supply of money. When there is more money available to lend (supply increases), lenders will offer loans at lower interest rates to attract borrowers. Conversely, a decline in the supply of money would typically lead to higher interest rates.
As for cost curves, the Average Cost (AC) and Marginal Cost (MC) curves tend to be U-shaped because of the economics of scale and the law of diminishing returns. Initially, as production increases, the firm benefits from economies of scale which reduce the average cost. However, after a certain point, the law of diminishing returns kicks in, and additional units of production become more expensive to make, leading to an increase in both AC and MC.