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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

Average cost curves (except for avenge 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?

To determine

The reason behind the U-shape of the average and marginal cost curves.

Explanation

As output increases the average cost declines initially. This continues till the point of maximum capacity of the machinery and scale of the factory. Then the law of variable proportion will apply. According to the law of variable proportions, as the quantity of one input is increased, holding the other inputs fixed, the marginal product of that input eventually declines...

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