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Question
The short run average cost curve (SAC) is __________.
The short run average cost curve (SAC) is __________.
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Solution
The correct option is B U-shaped
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.
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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