Asked by Emily Keith on May 10, 2024
Verified
The eventual increase in AVC as output increases is the _____ effect.
A) diminishing returns
B) spreading
C) constant cost
D) increasing returns
AVC
Average Variable Cost is the total variable costs divided by the quantity of output.
Diminishing Returns
A principle in economics where each additional unit of input results in a progressively smaller increase in output.
- Examine the impact of increasing and decreasing returns on the expenses associated with production.
Verified Answer
MH
Michelle HernandezMay 12, 2024
Final Answer :
A
Explanation :
As output increases, the average variable cost (AVC) eventually increases due to the law of diminishing returns. This states that as more and more of a variable input (such as labor) is added to a fixed input (such as capital), the marginal product of the variable input will eventually decrease, causing an increase in the AVC. This is also known as the law of diminishing marginal returns. Therefore, A) diminishing returns is the correct choice.
Learning Objectives
- Examine the impact of increasing and decreasing returns on the expenses associated with production.
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