Question

Average cost curves (except for average fixed cost) tend to be U-shaped, decreasing and then increasing. Marginal cost curves have the same shape, though this may be harder to see since most of the marginal cost curve is increasing. Why do you think that average and marginal cost curves have the same general shape?

Short answer

The overall cost of production is divided by total output, and marginal cost is the additional cost of generating an additional unit of output. Because of the Law of Variable Proportion, average cost curves are U-shaped. Because marginal costs are inextricably linked to average costs, they are likewise U-shaped.

Step-by-step solution

Step 1. Introduction

The cost per unit of output is known as the average cost.

The additional cost of producing an extra unit of output is known as the marginal cost.

Step 2. Explanation

Initially, as output rises, the average cost falls. This process continues until the factory's machinery and scale have reached their full capacity. The law of variable proportion will then be applied. The law of changing proportions states that as the quantity of one input is increased while the other inputs remain constant, the marginal product of that input will eventually decrease. As the marginal product decreases, the cost of the input increases. As a result, the average price rises. As a result, the U-shape. Because it is inextricably linked to the average cost, the marginal cost curve follows the average cost curve.