Short-run average variable costs decrease initially, but then begin to rise due to diminishing marginal productivity of labor.

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In the short-run, as more variable input (such as labor) is added to the production process, the average variable cost may initially decrease due to economies of scale. However, as the amount of variable input increases beyond a certain point, the marginal productivity of the input decreases, leading to an increase in average variable cost. This is known as the law of diminishing marginal returns.

Short-Run Average Variable Costs Decrease Initially, but Then Begin to Rise