Marginal cost rises as a direct result of diminishing returns because as a firm continues to produce more of a good, it will eventually experience diminishing marginal returns, where the marginal product of each additional unit of input decreases. This means that the cost of producing each additional unit of output will also increase, resulting in a higher marginal cost.

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Marginal Cost

Question 27

Multiple Choice

Marginal cost

A) Rises as a direct result of diminishing returns.
B) Falls whenever marginal physical product decreases.
C) Falls in the short run because some resources are fixed.

Correct Answer: