On account of the law of ______, the average variable cost curve is U-shaped.

variable proportions

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demand

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supply

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diminishing marginal rate of substitution

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Solution

The correct option is A variable proportions
The U shape of SAC curve is directly due to the law of variable proportions, since in the short run some factors are fixed and some are variable. Initially, the average cost falls up to the optimum capacity level of output due to increasing returns to variable factor and it increases thereafter due to diminishing returns to the variable factor.

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