# Rising of AVG is due to _________. • Under the law of increasing retu

A. increasing returns to a factor

B. diminishing returns to a factor

C. constant returns to a factor

D. no returns to a factor

### Right Answer is: B

#### SOLUTION

• **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.**