The marginal cost curve has a U shape because
A)Initially, the marginal product of labour falls, then rises.
B)Initially, the average product of labour rises, then falls.
C)Initially, the marginal product of labour rises, then falls.
D)Initially, the average cost of production rises, then falls.

Question

Quizplus · Accepted Answer

The U shape of the marginal cost curve is due to the Law of Diminishing Marginal Returns, which states that as more units of labor are added to a fixed amount of capital, at some point the marginal product of labor will begin to decrease. Initially, with each additional unit of labor, the marginal product of labor increases. However, at some point, due to the fixed amount of capital, the marginal product of labor starts to decrease. This leads to an increase in marginal cost, which is reflected in the upward slope of the U shape of the marginal cost curve. As the marginal product of labor continues to decrease, marginal cost keeps rising, but at a slower rate due to the spreading of fixed costs over a larger quantity of output. Eventually, the marginal product of labor reaches zero and then becomes negative, leading to a decline in marginal cost, which is reflected in the downward slope of the U shape of the marginal cost curve.

The Marginal Cost Curve Has a U Shape Because