The law of diminishing marginal returns
A) explains why the average total cost and marginal cost curves are U-shaped in the short run.
B) explains why the average total cost, average fixed cost and the marginal cost curves are U-shaped in the short run.
C) causes average total costs to rise at a decreasing rate as output increases.
D) causes the difference between average total cost and average variable cost to get smaller as output increases.

Question

Quizplus · Accepted Answer

The law of diminishing marginal returns states that as more units of a variable input are added to a fixed input, the additional output from each new unit of input eventually decreases. This leads to an increase in marginal cost, which contributes to the U-shape of the average total cost and marginal cost curves in the short run.

The Law of Diminishing Marginal Returns