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Why are AVC, ATC and MC curves U-shaped? |
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Answer» It is due to the Law of Variable Proportions. Law of variable proportions (diminishing returns) states that as the units of variable factor are increased, MP first rises and then falls. When MP rises, MC falls and when MP falls, MC rises. It is the behaviour of MC, which determines the behaviour of AC. When MP is maximum then MC is minimum and when AP is maximum then AC is minimum. Under Ilnd stage, MC and AC both rises. |
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