The reason the marginal cost curve eventually increases as output increases for the typical firm is because of

The correct answer is: C. The law of diminishing returns.

The law of diminishing returns states that in all productive processes, adding more of one input, while holding all others constant (ceteris paribus), will at some point yield lower incremental per-unit returns. The law of diminishing returns does not imply that adding more of an input will always decrease the production, a situation that is referred to as negative returns to scale. Instead, diminishing returns implies that in all productive processes, adding more of an input will at some point yield lower incremental per-unit returns.

In the context of the question, the marginal cost curve eventually increases as output increases because as a firm produces more output, it must use more inputs. However, the law of diminishing returns states that as more and more inputs are used, the marginal product of each additional input will eventually decrease. This means that the firm will have to use more and more inputs to produce each additional unit of output, and the marginal cost of producing each additional unit of output will eventually increase.

The other options are incorrect for the following reasons:

• A. Diseconomies of scale are a situation in which a firm’s long-run average costs increase as output increases. This can happen for a variety of reasons, such as when a firm becomes too large and bureaucratic, or when it has difficulty coordinating its activities. However, diseconomies of scale are not the reason why the marginal cost curve eventually increases as output increases.
• B. Minimum efficient scale is the smallest output level at which a firm can produce at the lowest possible average cost. Once a firm reaches its minimum efficient scale, its marginal cost curve will be horizontal.
• D. Normal profit is the amount of profit that a firm must earn in order to stay in business. Economic profit is the amount of profit that a firm earns above and beyond normal profit. The law of diminishing returns does not have any direct impact on normal profit or economic profit.