Why does the marginal cost curve decrease initially, but then start to increase?

Question

BlackTom AI · Accepted Answer

This question asks why the marginal cost (MC) curve behaves in a specific way as output expands.

Option analysis is limited here because no list of alternatives is provided, but we can still explain the core idea behind the stated answer.

The given statement, 'Marginal costs fall due to specialisation and division of labour; but then rise as diminishing returns set in,' reflects a classic microeconomic concept. Initially, as production increases, workers can specialise in specific tasks and equipment can be used more efficiently. This increases the marginal product of labor and other inputs, meaning each additional unit of output costs less to produce, so MC falls.

As output continues to grow, however, the benefits of specialization begin to wane. Diminishing marginal returns set in because additional units of the variable input (often labor) contribute less and less to output when capital is fixed in the short run. This causes the marginal product of input to fall, so the cost of producing each extra unit—the MC—begins to rise.

Thus, the MC curve is typically downward-sloping at first (due to increasing marginal product from specialization) and then upward-sloping (due to diminishing marginal returns and capacity constraints). This creates the familiar U-shaped behavior often discussed in connection with costs in the short run.

If there were alternative statements, we would compare them against this mechanism: any claim that MC falls indefinitely, or that it is unrelated to returns to the variable input, would be inconsistent with the standard explanation involving specialization followed by diminishing returns.

In short, the core logic is: specialization and division of labor boost marginal productivity early on, reducing MC; but as more units are produced, diminishing returns drag down marginal productivity, raising MC.

MUF0061 Economics Unit 1 - Semester 1, 2025 Revision Quiz: Marginal Cost, Average Cost and Economies of Scale (5 - 10 minutes)

Why does the marginal cost curve decrease initially, but then start to increase?

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MUF0061 Economics Unit 1 - Semester 1, 2025 Revision Quiz: Marginal Cost, Average Cost and Economies of Scale (5 - 10 minutes)

Why does the marginal cost curve decrease initially, but then start to increase?

View Explanation

Log in for full answers

Similar Questions

An assumption of the BECOMP model is:

When the average total cost curve is downward sloping, what must be true about the marginal cost curve?

Refer to the accompanying graph to answer the next question. The firm is experiencing gains from specialization up to what level of output along the marginal cost curve?

Part 1In the​ figure, the marginal cost of the last unit produced by the profit maximizing firm is A. ​$15. B. ​$10. C. ​$5. D. ​$20. Part 1

A company produces a popular brand of cookies. In the short run, the size of its factory and equipment are fixed, but it can hire more or fewer workers. Suppose the company observes that its marginal product of labor is increasing. What will happen to its marginal cost of production?

When a firm increased its output by one unit, its AC rose from $45 to $50. This implies that its MC after the increase is

More Practical Tools for Students Powered by AI Study Helper

Making Your Study Simpler

Part 1In the figure, the marginal cost of the last unit produced by the profit maximizing firm is A. $15. B. $10. C. $5. D. $20. Part 1