Question

Suppose the marginal cost curve in the short run first decreases and then increases. If marginal cost is decreasing, _____ must be _____ and _____ must be _____.

Answer 1

Answer: D. marginal product; increasing; average variable cost; decreasing

Explanation:

The Marginal product curve is hump-shaped and the marginal cost curve is U-shaped because these two move in opposite directions to each other.

If the marginal cost is decreasing therefore, the marginal product must be increasing. If the marginal cost is decreasing and the marginal product is increasing, average variable cost will have to fall because every additional unit produced incurs less cost so the average has to fall as well.