The effect of diminishing marginal returns outweighing the effect of spreading out the fixed costs is illustrated by the ________ average cost curve ________.
A) long-run; decreasing
B) long-run; increasing
C) short-run; decreasing
D) short-run; increasing

Question

Quizplus · Accepted Answer

The effect of diminishing marginal returns outweighing the effect of spreading out fixed costs is illustrated by the short-run average cost curve increasing. This is because, in the short run, there are fixed inputs, and as production increases, the benefits of spreading out fixed costs are eventually outweighed by the increasing costs of using variable inputs more intensively, leading to diminishing marginal returns.

The Effect of Diminishing Marginal Returns Outweighing the Effect of Spreading