Question

Clearly explain the shape of the marginal cost curve. (Don't just say how it's shaped, explain why we model it with that shape.)

Answer 1

Ans. Marginal Cost curve is U - Shaped. Because of Law of Increasing returns , initially when a firm increases it's output , total cost increases at a diminishing rate ie marginal cost declines till it becomes minimum. Now , Law of diminishing returns Set in and further increase in output increases total cost at an increasing rate thereby increasing the marginal cost. Hence it becomes U shaped.

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