A manufacturing company has increased its level of output to the point where marginal costs...

Marginal cost (MC) is the cost of producing one additional unit of output. When MC exceeds average total cost (ATC), the firm has reached capacity constraints and is experiencing diminishing returns.

Why is Option D Correct?

As production increases, bottlenecks occur due to limitations in machinery, labor, or materials.

This leads to higher variable costs per unit, making further expansion inefficient.

Why Not Other Options?

A (Fixed costs fall) → Fixed costs remain constant, only spread over more units.

B (Market saturation) → Rising costs do not indicate market conditions.

C (Variable costs negligible) → Variable costs increase, not decrease.

???? Reference: Microeconomics - Cost Structures, CISI Wealth & Investment Management.