The law of diminishing returns explains why short-run marginal cost curves are upward sloping.

Question

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The law of diminishing returns states that as more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease. This means that each additional unit of the variable input will result in smaller and smaller increases in output, eventually leading to a point where additional units of the variable input will cause output to decrease. In the short run, a firm typically has at least one fixed input, such as its plant and equipment, while its variable inputs include labor, raw materials, and energy. As the firm increases its use of variable inputs in the short run, the law of diminishing returns will eventually take effect, causing marginal cost to increase. This is why short-run marginal cost curves are upward sloping.

The Law of Diminishing Returns Explains Why Short-Run Marginal Cost