Question

What do the short run marginal cost, average variable cost and short run average cost curves look like?

Answer 1

Answer:

The short-run marginal ‘cost average variable’ cost and ‘short-run average cost’ curves are U shaped.

Explanation:

The reason for this economic situation is due to the law of variable proportion, which states that in the initial stages of production in short-run the average and marginal cost fall.

When the introduction of variable factor increases during the initial stage the marginal cost decreases due to increasing returns but thereafter it rises due to the cost of ‘variable proportion’. That is why it has a U shape.