The short-run average total cost,average variable cost,and marginal cost curves are all U-shaped because of
i.constant total fixed cost.
ii.increasing and then decreasing marginal returns as more labor is hired.
iii.economies and diseconomies of scale as the plant size increases.
A) only i
B) only ii
C) i and iii
D) ii and iii
E) i, ii, and iii

Question

Quizplus · Accepted Answer

The U-shape of the short-run average total cost, average variable cost, and marginal cost curves is primarily due to increasing and then decreasing marginal returns as more labor is hired. This reflects the law of diminishing marginal returns in the short run, where initially, adding more workers leads to greater efficiency and lower costs per unit, but beyond a certain point, adding more workers leads to less efficiency and higher costs per unit. Constant total fixed cost (i) does not explain the U-shape since it remains constant regardless of output level, and economies and diseconomies of scale (iii) are more relevant to the long-run average cost curve, not the short-run curves.

The Short-Run Average Total Cost,average Variable Cost,and Marginal Cost Curves