Question

In the profit maximization graph, why does the MC curve first drop and than starts rising again?

Answer 1

The MC curve is U-shaped which shows that as the firm increases its production,the MC curve first starts decreasing and then starts increasing.

Because when the firm increases its output,its total cost increases along with its variable cost at a diminishing rate.The MC curve will keep decreasing until the firm is experiencing economies of scale until it reaches its minimum point.Then with an increase in output,the firm will experience diseconomies of scale which will increase the cost at an increasing rate and so the MC curve will start increasing at an increasing rate.