Consider the following statements about why the short run marginal cost (SMC) curve is ‘U’-shaped:
(A) Initially, as more of the variable factor is employed, its marginal product rises.
(B) While the marginal product rises, each extra unit of output needs less of the variable factor.
(C) With the factor price given, SMC falls at first as output rises, while the marginal product of the factor rises.
(D) Once the marginal product starts falling, each extra unit of output needs less of the variable factor.
(E) The SMC curve is ‘U’-shaped because of increasing and then decreasing returns to scale.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (C) only
SMC is ‘U’-shaped because of the law of variable proportions, which holds in the short run with one factor fixed.
(A) Initially, as more of the variable factor is employed, its marginal product rises. — Correct. This is the first phase of the law.
(B) While the marginal product rises, each extra unit of output needs less of the variable factor. — Correct. Each unit of the factor adds more output, so an extra unit of output needs less of it.
(C) With the factor price given, SMC falls at first as output rises, while the marginal product of the factor rises. — Correct. Less factor per extra unit, at a given price, means a lower cost of each extra unit.
(D) Once the marginal product starts falling, each extra unit of output needs less of the variable factor. — Incorrect. Once MP falls, each extra unit of output needs more of the factor, so SMC rises.
(E) The SMC curve is ‘U’-shaped because of increasing and then decreasing returns to scale. — Incorrect. Returns to scale need all inputs to change, which happens only in the long run. SMC is a short run cost.
NCERT (2026-27): “Shapes of the Short Run Cost Curves … Let us now look at the SMC curve. Marginal cost is the additional cost that a firm incurs to produce one extra unit of output. According to the law of variable proportions, initially, the marginal product of a factor increases as employment increases, and then after a certain point, it decreases. This means initially to produce every extra unit of output, the requirement of the factor becomes less and less, and then after a certain point, it becomes greater and greater. As a result, with the factor price given, initially the SMC falls, and then after a certain point, it rises. SMC curve is, therefore, ‘U’-shaped.” |