Question

The reason why, beyond some output level, the short-run variable and short-run total cost curves begin to increase at an increasing rate, or equivalently, the short-run marginal cost curve begins to rise is

Select one:

a. increasing returns to scale

b. diminishing marginal product

c. decreasing returns to scale

d. diminishing marginal rate of technical substitution

Answer 1

Ans-) Option B is Correct.

Explanation- As we know in short run there is two types of cost involved fixed and variable cost. Fixed cost remains same and don't change in short run, where as variable cost can be change in short run.So, when changes is made to production due to change in only one factor keeping fixed factors same this situation is know as Law of variable Proportion or also Returns to a Factor.

It has 3 stages- a) Increasing return to a factor (b) Diminishing return to a factor (c) Negative return to a factor.

Shape of Variable Cost and average variable cost and also marginal cost is due to law of variable proportion.

Other options are incorrect because Return to Scale works in long run.