Why does the marginal cost curve typically have a U-shape in microeconomics?

• A. Because fixed costs increase as output rises
• B. Because total cost always decreases with higher output
• C. Because average variable cost is always constant
• D. Because of initially increasing, then decreasing marginal returns to inputs

Answer: (D)

Verified step by step guidance

1. Understand that the marginal cost (MC) curve represents the additional cost of producing one more unit of output.
2. Recall the concept of marginal returns: initially, as more input is added, marginal returns increase due to better utilization of resources, causing marginal cost to decrease.
3. Recognize that after a certain point, diminishing marginal returns set in, meaning each additional unit of input adds less to output, causing marginal cost to increase.
4. Combine these effects to see why the MC curve first falls and then rises, creating a U-shape.
5. Note that fixed costs do not affect marginal cost since they do not change with output, and average variable cost is not always constant, so these options do not explain the U-shape.