economies of scale
falling marginal costs
diminishing returns
rising fixed costs
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Discussions (2)
short-run average cost refers to the average cost of producing goods or services in the short run. This cost includes both fixed and variable costs. The question is asking what causes the short-run average cost to rise.
The first option, economies of scale, refers to the situation where the cost per unit of production decreases as the level of production increases. This is not the correct answer to the question as it states that the cost should decrease instead of increasing.
The second option, falling marginal costs, refers to the decrease in cost that results from producing one additional unit of a good or service. This is also not the correct answer to the question as it implies that the cost should be decreasing, not increasing.
The third option, diminishing returns, is the correct answer to the question. Diminishing returns occur when the marginal product of an input decreases as the quantity of the input increases. This leads to a situation where additional units of the input lead to smaller increases in output, causing the average cost to rise.
The fourth option, rising fixed costs, refers to the increase in fixed costs that a firm incurs as it produces more output. This can lead to a rise in the total cost of production, but it does not necessarily lead to a rise in the short-run average cost.
In summary, the correct answer to the question is option C: diminishing returns. This occurs when the marginal product of an input decreases as the quantity of the input increases, leading to a rise in the short-run average cost.
