Question

Why is marginal cost curve upward sloping?

Answer 1

Marginal cost is the cost incurred in the production of one more unit of a product. Usually, when the manufacturer starts manufacturing, he has many efficiencies in his production process, like extra capital, highly efficient labor, cost of land under control and paid off in advance, cost of packaging under control. All these efficiencies help the producer or manufacturer to manage a better efficient and downward sloping marginal cost. However, with the passage of time, and as soon as all the efficient resources in the production process are used up, the concept of ‘diminishing marginal returns’ starts to creep up. By diminishing marginal returns, it means that the returns received from the production of one extra unit of the product. This return is always diminishing or going down, because with the increase in the number of manufactured products, the demand for the product starts comparatively going down due to the consumers already have already consumed some amount of the product. This causes the manufacturer having to invest more for the production of similar quantity of product. This therefore leads to the increase in the per unit marginal cost of production, and therefore the marginal cost curve always goes up.