Question

Discuss what role the law of diminishing returns plays in shaping short-run cost curves

Answer 1

The law of diminishing returns states that when one of the inputs for the production of good is fixed which is the case in short run, the increase in marginal product of another inputs starts falling.

Short run cost curve is marginal cost which is rising with rising output because more input is needed to produce additional output. This is so because diminishing returns makes additional output more costly to produce than before. This makes short run cost curve upwards sloping.