Answer to Question #124320 in Macroeconomics for Akshaj Rajbhandari

Question

Relate the law of diminishing returns to the cost curves

Answer 1

One of the among the effects of the law of diminishing returns is that for every additional unit of production is directly proportional to the costs involved in producing such product. This means that for every additional production, there is also increase in the costs involved.

Therefore, the law of diminishing returns will mean that that the marginal costs will increase proportionate to the increase in output. Consequently, as the marginal cost keep on increasing it will also trigger the average total cost to increase as well.

Likewise, when the diminishing returns that are set in the marginal cost starts to increase, average total cost starts falling until it reaches a point where average variable cost is equal to the decrease i the average fixed cost which is termed as the output of productivity efficiency.