If the marginal cost curve is U-shaped,

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BlackTom AI · Accepted Answer

When the marginal cost curve is U-shaped, it reflects the typical production process where initially increasing marginal productivity (due to specialization and gains from division of labor) lowers marginal costs, but after a point, diminishing marginal returns cause marginal costs to rise.

Option a: 'the average variable cost curve is a straight line.' This is incorrect because AVC usually declines initially as output rises (due to increasing marginal returns) and then rises as diminishing returns set in, giving AVC a U-shaped pattern rather than a straight line.

Option b: 'the average total cost curve is continually upward sloping.' This is not generally true for a typical U-shaped MC. In the short run, ATC is also U-shaped because it includes AFC, which is always falling, and the AVC portion that is U-shaped. Therefore ATC is not continually upward sloping.

Option c: 'average fixed costs are continually decreasing.' While AFC does decline as output increases, it is not a statement about the MC shape, and it does not capture the behavior of MC. This option describes AFC, not the implications of a U-shaped marginal cost curve.

Option d: 'there are productivity gains from specialization before diminishing marginal product sets in.' This aligns with the standard explanation of a U-shaped MC: initial specialization and learning reduce marginal costs, but after a point, diminishing marginal returns push costs back up. This option correctly describes the early downward-sloping portion of MC before the later upward-turn due to diminishing returns.

In summary, the other options mischaracterize typical cost curves or focus on components (AVC, ATC, AFC) rather than the implications of a U-shaped marginal cost curve related to specialization and diminishing returns.

THC - MCD2020 - T3 - 2025 Homework Quiz 6 - Cost of Production

If the marginal cost curve is U-shaped,

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THC - MCD2020 - T3 - 2025 Homework Quiz 6 - Cost of Production

If the marginal cost curve is U-shaped,

View Explanation

Log in for full answers

Similar Questions

If a firm's average total cost decreases as the firm increases its output, the firm's marginal cost must be

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In the diagram, A represents a firm's ___ curve, B represents its _ curve, and C represents its ___ curve.