The U-shape of the average variable,average total,and marginal cost curves reflects
A) increasing marginal returns.
B) decreasing marginal returns.
C) both increasing and decreasing marginal returns.
D) decreasing marginal product.
E) the point that implicit costs become a smaller fraction of total cost as output increases.

Question

Quizplus · Accepted Answer

The U-shape of these cost curves reflects both increasing and decreasing marginal returns. Initially, as production increases, firms experience increasing marginal returns, which leads to a decrease in the average and marginal costs. However, as production continues to increase, decreasing marginal returns set in, causing the average and marginal costs to increase, thus creating the U-shape.

The U-Shape of the Average Variable,average Total,and Marginal Cost Curves