When a monopolist faces a U-shaped average cost curve in the short run as more and more output is produced,the upward-sloping portion of the curve is the result of
A) an upward-sloping demand curve.
B) the law of diminishing marginal returns.
C) economies of scale.
D) an increase in taxes.
E) a vertical supply curve.

Question

Quizplus · Accepted Answer

The upward-sloping portion of the U-shaped average cost curve is the result of the law of diminishing marginal returns. This occurs when the additional unit of output adds more to the cost of production than the revenue gained from selling that unit. Thus, as more and more output is produced, the cost per unit increases, resulting in the upward-sloping portion of the curve.

When a Monopolist Faces a U-Shaped Average Cost Curve in the Short