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Question
Why is the short run marginal cost 'U' shaped?
Why is the short run marginal cost 'U' shaped?
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Solution
In the short run, as the employment of the variable factor increases, fixed cost remaining constant, in the initial stage marginal cost decreases (owing to increasing returns), but finally tends to rise in accordance with the law of variable proportions. Hence, the 'U' shape of MC emerges.
In the short run, as the employment of the variable factor increases, fixed cost remaining constant, in the initial stage marginal cost decreases (owing to increasing returns), but finally tends to rise in accordance with the law of variable proportions. Hence, the 'U' shape of MC emerges.
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