The short-run average variable cost curve eventually begins to increase at an increasing rate because of
A) diseconomies of scale phenomena.
B) a constraint that does not allow the firm to change its production technology.
C) diminishing returns phenomena.
D) increasing returns to scale to capital.

Question

Quizplus · Accepted Answer

The short-run average variable cost curve eventually begins to increase at an increasing rate because of diminishing returns phenomena. As the firm tries to increase the production level, the marginal product of variable factors starts to decline which leads to an increase in the average variable cost. This is also known as the Law of Diminishing Returns.

The Short-Run Average Variable Cost Curve Eventually Begins to Increase