Answer:
When the additional cost (input) of producing one more unit (output) is greater than the additional revenue earned on it results in increase in the average variable cost.
Step-by-step explanation:
Average Variable cost is calculated by dividing the total variable cost by output. The graph of which, when prepared, is shaped in U curve. This is because when we produce one unit (output) then the additional cost (input) incurred is lower than the additional revenue earned.
However, as we proceed further in producing more units at one point in time we reach from fall in average variable cost to constant level and then the average variable cost starts to rise. This rise in average variable cost is known as the law of diminishing marginal returns. Which states that at one certain point Average Variable cost will start to rise. The production in one more unit will result in the additional cost to be more than the additional revenue generated from it.