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The marginal cost curve

(i) Suppose a firm's short-run average cost curve is U shaped: what does this imply about the marginal return to the variable input? (ii) Comment on the following statement: "Average cost includes both fixed and variable costs, whereas marginal cost only includes variable costs. Therefore, marginal cost is never greater than average cost."

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i) Suppose a firm's short-run average cost curve is U shaped: what does this imply about the marginal return to the variable input?
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<br>The U-shape of the short-run average cost curve is the result of increasing marginal returns for small quantities of output ...

Solution Summary

Focus on the marginal cost curve.

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