Why does the marginal cost curve typically exhibit a U-shape, regardless of the specific product being produced?

• A. Because of the law of diminishing marginal returns, which causes marginal cost to decrease initially and then increase as output rises.
• B. Because total cost remains unchanged as output increases, resulting in a U-shaped marginal cost curve.
• C. Because fixed costs always increase as more units are produced, leading to a U-shaped curve.
• D. Because marginal cost is determined solely by the price of the product, which is always constant.

Answer: (A)

Verified step by step guidance

1. Understand that the marginal cost (MC) curve shows the change in total cost when producing one additional unit of output.
2. Recall the law of diminishing marginal returns, which states that as more units of a variable input (like labor) are added to fixed inputs (like capital), the additional output from each new unit eventually decreases.
3. Recognize that initially, when production starts, increasing inputs can lead to more efficient production, causing marginal cost to decrease.
4. As output continues to increase, diminishing marginal returns set in, making each additional unit more costly to produce, which causes marginal cost to rise.
5. Combine these effects to see why the marginal cost curve typically has a U-shape: it falls at first due to increasing efficiency, then rises due to diminishing returns.