The shape of the short-run average total cost curve is a result of
A) economies of scale.
B) diseconomies of scale.
C) the law of diminishing marginal product.
D) falling profits.

Question

Quizplus · Accepted Answer

The shape of the short-run average total cost curve is a result of the law of diminishing marginal product. As more and more units of variable input (e.g. labor) are added to a fixed input (e.g. factory), the marginal product of the variable input eventually decreases, causing average total cost to increase. This is reflected in the U-shaped curve typically seen for the short-run average total cost curve.

The Shape of the Short-Run Average Total Cost Curve Is