In microeconomic theory, increasing marginal cost of production helps to explain which typical shape or property of the supply curve?

Introduction / Context:
In microeconomics, marginal cost refers to the additional cost of producing one more unit of output. For many firms and industries, the marginal cost of production eventually rises as output increases. This rising marginal cost is a key reason why the supply curve has a positive slope, meaning that higher prices are needed to induce firms to produce and sell more units. This question asks you to link the concept of increasing marginal cost with the behaviour of the supply curve, and distinguish it from concepts that explain the demand curve or consumer behaviour.

Given Data / Assumptions:

• Marginal cost is defined as the cost of producing an additional unit of output.
• We assume a typical firm with initially constant or falling marginal cost followed by rising marginal cost at higher output levels.
• The supply curve shows the relationship between the market price and the quantity firms are willing to supply.
• Demand side concepts like income effect and law of demand are separate from production cost analysis.

Concept / Approach:
The core idea is that profit maximising firms choose output where marginal cost equals marginal revenue. In perfectly competitive markets, marginal revenue equals the market price. As output expands, marginal cost tends to rise because of diminishing returns to variable factors or capacity constraints. If firms must receive a price at least equal to their marginal cost in order to supply a unit, then higher output levels require higher prices to cover these rising marginal costs. This logic translates into an upward sloping supply curve. The question therefore requires recognising that increasing marginal cost is a supply side story, not a demand side story.

Step-by-Step Solution:
Step 1: Recall that marginal cost is the extra cost of producing one more unit of output. Step 2: Understand that for many production processes, marginal cost rises as output expands beyond a certain point. Step 3: Recognise that firms in competitive markets supply output up to the point where price equals marginal cost. Step 4: If marginal cost is higher for higher levels of output, firms will only supply those higher quantities when the market price is also higher. Step 5: This relationship between higher prices and higher quantities supplied is depicted by an upward sloping supply curve. Step 6: Conclude that increasing marginal cost explains why the supply curve is upsloping.

Verification / Alternative check:
For verification, imagine a firm with a marginal cost schedule where producing the first few units is cheap, but each additional unit becomes more expensive due to overtime pay, machine wear, or limited capacity. At low prices, the firm is willing to supply only the cheaper units. If the price increases, the firm finds it profitable to supply additional units, even though they have higher marginal cost, because the higher price covers these costs and still allows some profit. When you plot price against quantity supplied for these decisions, you obtain an upward sloping supply curve. This simple example illustrates how rising marginal cost and profit maximisation together produce the standard supply curve shape.

Why Other Options Are Wrong:
The income effect of a price change on consumers is a demand side concept and has nothing to do with marginal cost of production. The law of demand and the downward sloping demand curve are explained by diminishing marginal utility, substitution effects, and income effects, not by production costs. Fixed costs do not determine the slope of the supply curve in the short run; they are sunk with respect to output decisions and do not affect marginal cost directly. Therefore, these options do not link correctly to increasing marginal cost. Only the option that states that increasing marginal cost explains why the supply curve slopes upward is consistent with standard microeconomic theory.

Common Pitfalls:
A common pitfall is to confuse marginal cost with marginal utility and incorrectly link production cost concepts to consumer demand behaviour. Another mistake is to think that fixed costs alone drive supply decisions, when in fact marginal costs are crucial for output choices. Students sometimes also believe that the upward slope of the supply curve is simply assumed rather than derived from marginal cost patterns and profit maximisation. To avoid these errors, always remember that supply is about producers and costs, while demand is about consumers and utility, and that the link between marginal cost and the supply curve is central in production theory.

Final Answer:
Thus, increasing marginal cost of production helps to explain why the supply curve slopes upward as price rises, since higher prices are needed to cover higher marginal costs at larger output levels.