The short-run average total cost, average variable cost, and marginal cost curves are all U-shaped because of i. constant total fixed cost.
Ii. increasing and then decreasing marginal returns as more labor is hired.
Iii. economies and diseconomies of scale as the plant size increases.

Question

Quizplus · Accepted Answer

The U-shape of the short-run average total cost, average variable cost, and marginal cost curves is due to the law of diminishing marginal returns, which causes marginal costs to initially decrease and then increase as more units of labor are added to the production process. This leads to a U-shaped average variable cost curve, and since average total cost includes fixed costs which do not vary with the level of output, it also has a U-shape. The economies and diseconomies of scale, which are represented by the long-run average cost curve, are not relevant to the shape of the short-run cost curves.

The Short-Run Average Total Cost, Average Variable Cost, and Marginal