As output increases,average variable cost first declines but eventually rises because
A) average variable cost is derived by dividing a constant, the total variable cost, by the output rate.
B) of the effect of the law of diminishing returns.
C) it represents the addition to total cost resulting from the last unit of output.
D) at higher output rates, fixed costs per unit are relatively large.
E) if output is increased, total variable costs decline, then rise.

Question

Quizplus · Accepted Answer

The law of diminishing returns states that as more units of a variable input are added to a fixed input (such as capital), the marginal product of the variable input will eventually decrease. This means that as output increases, the additional cost of each unit of output (i.e. the variable cost per unit) will eventually increase as well, causing average variable costs to rise.

As Output Increases,average Variable Cost First Declines but Eventually Rises