explain the relationship btw Average cost and marginal cost in the short-run and why the average cost curve takes U shape?

Economics Nov 07, 2020

Expert Solution

In case if the average cost declines due to an increase in the production, the marginal cost is lower than the average cost. if the average cost increases due to an increase in the production then the marginal cost is higher than the average cost. marginal cost is equal to average cost when the cost of marginal output is minimum.

average cost curve takes u shape in short run due to marginal returns. after certain level increase in extra level tends to declinev in productivity.

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