Increasing marginal cost of production explains:
the law of demand.
the income effect.
why the supply curve is upsloping.
why the demand curve is downsloping.
The correct answer and explanation is :
The correct answer is “why the supply curve is upsloping.”
Explanation:
In economics, the concept of marginal cost (MC) refers to the additional cost incurred in producing one more unit of output. As production increases, businesses often face increasing marginal costs due to factors such as limited resources, capacity constraints, or inefficiencies as they scale production. This increase in marginal cost is a key factor in explaining why the supply curve is upward sloping.
Why the supply curve is upsloping:
The supply curve represents the relationship between the price of a good and the quantity that producers are willing to produce and sell. As the price of a good rises, producers are incentivized to increase production because higher prices typically mean higher potential profits. However, as they expand production, they often face increasing marginal costs—due to the factors mentioned earlier.
For example, initially, a company may be able to produce additional units at a relatively low cost, but as production increases, it may need to use less efficient inputs or equipment, leading to higher costs. This explains why, at higher output levels, producers require higher prices to cover the increasing marginal costs of production. The upward-sloping supply curve reflects this positive relationship: as prices rise, the quantity supplied increases, but at higher prices, producers face higher costs, leading to the upward slope.
Why it’s not the other options:
- The law of demand: This refers to the inverse relationship between price and quantity demanded, where higher prices typically lead to lower demand, not related to marginal cost.
- The income effect: This refers to how a change in a consumer’s income affects their demand for goods, which does not relate directly to the supply curve or marginal cost.
- The demand curve is downsloping: The demand curve slopes downward because of the substitution and income effects. However, this is unrelated to marginal cost.