Which of the following cost curves does not have a shape that is explained by the law of diminishing returns?
Question: Which of the following cost curves does not have a shape that is explained by the law of diminishing returns?
The average fixed cost curve is the only cost curve that does not have a shape that is explained by the law of diminishing returns.
The law of diminishing returns states that as more and more of a variable input is added to a fixed input, the additional output produced from each additional unit of variable input decreases.
The average fixed cost curve is calculated by dividing the total fixed costs by the quantity of output produced. Fixed costs are costs that do not change with the level of output, such as rent and depreciation. As the quantity of output produced increases, the average fixed cost curve decreases. This is because the fixed costs are spread out over a larger number of units of output.
The following graph shows the shapes of the different cost curves:
As you can see, the average fixed cost curve is the only cost curve that is downward sloping. This is because the average fixed cost curve is not affected by the law of diminishing returns.
The average total cost curve, the average variable cost curve, and the marginal cost curve are all upward sloping at higher levels of output. This is because of the law of diminishing returns.
Therefore, the average fixed cost curve is the only cost curve that does not have a shape that is explained by the law of diminishing returns.
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