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Production and cost — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsProduction and cost3 Marks
Question
Why is the short run marginal cost curve ‘U’-shaped?
✓

Answer

It is due to operation of law of variable proportion according to which MP first rises, reaches its maximum and then declines. Since increasing returns means diminishing cost and diminishing returns imply increasing cost, therefore, MC first falls because of increasing returns, reaches its minimum and then rises due to operation of diminishing returns. As a result MC curve becomes U-shaped.

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