Why are Average and Marginal Cost curves ‘U’ shaped.

1.	Why are Average and Marginal Cost curves ‘U’ shaped.
Answer» For an increase in the output, AC and MC fall initially then reach a minimum value and later rise with the rise in output. The change in MC is greater than that in AC. In the beginning, AC falls due to the more influence of of AFC and later rises under the influence of AVC with an increase in output. This makes AC to become U shaped. MC falls as output increases in the beginning. It starts rising after a certain level of output. This happens because of the influence of the law of variable proportions. The fact that Marginal Product rises first, reaches maximum and then declines ensures that the Marginal Cost curve of a firm declines first, reaches minimum and then rises and becomes U shaped.

Answer»

For an increase in the output, AC and MC fall initially then reach a minimum value and later rise with the rise in output. The change in MC is greater than that in AC.

In the beginning, AC falls due to the more influence of of AFC and later rises under the influence of AVC with an increase in output. This makes AC to become U shaped.

MC falls as output increases in the beginning. It starts rising after a certain level of output. This happens because of the influence of the law of variable proportions. The fact that Marginal Product rises first, reaches maximum and then declines ensures that the Marginal Cost curve of a firm declines first, reaches minimum and then rises and becomes U shaped.

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