Rising of AVG is due to _________. • Under the law of increasing retu
Right Answer is: B
• Under the law of increasing returns when a firm employs more and more factors of production, its output increases at an increasing rate.
• In such a situation both the average cost and marginal cost slope downward, however the Marginal Cost curve has more downward slope than Average Cost Curve.
• Under the law of diminishing returns, the output increases at diminishing rate as firm employs more and more units of factors of production.
• In this case, if Average Cost increases Marginal cost also increases. However the rate of increase in MC will be higher the rate of increase in AC.
• Rising of AVG is due to diminishing returns to a factor.