Because the marginal product of a variable resource at first increases and then decreases as the output of the firm is increased,
A)total cost at first increases at a decreasing rate and then increases at an increasing rate.
B)total variable cost at first increases at an increasing rate and then increases at a decreasing rate.
C)average total cost at first increases and then diminishes.
D)average fixed cost will rise beyond the point of diminishing returns.

Question

Quizplus · Accepted Answer

The marginal product of a variable resource initially increases due to efficiencies gained from specialization and better utilization of fixed resources. As more of the variable resource is added, the fixed resources become over-utilized, leading to a decrease in the marginal product. This results in total cost initially increasing at a decreasing rate (due to the increasing marginal product) and then increasing at an increasing rate (due to the decreasing marginal product).

Because the Marginal Product of a Variable Resource at First