Empirical evidence indicates that most firms operate where marginal and average variable costs are constant.

Question

Quizplus · Accepted Answer

This is known as the "law of diminishing marginal returns" and it suggests that as more units of a product are produced, the marginal costs of producing each additional unit will eventually increase, but the average variable cost will remain constant for a certain range of output. This is why firms often try to produce at the point where marginal cost equals marginal revenue, which is where they can maximize profits.

Empirical Evidence Indicates That Most Firms Operate Where Marginal and Average