Answer:
increasing marginal returns, decreasing marginal returns
Explanation:
Increasing marginal returns refer to a situation whereby the marginal product of the variable input (e.g. labor) increases as more of the variable input is added to the fixed input (e.g. capital). This refers Stage I or the Short-run production Stage I whereby the addition of a variable input to a fixed input makes the variable input to be more productive.
On the other hand, decreasing marginal returns or diminishing marginal returns refer to a situation whereby the marginal product of the variable input (e.g. labor) decreases as more of the variable input is added to the fixed input (e.g. capital). This refers to Stage II or the Short-run production Stage II whereby the addition of a variable input to a fixed input makes the variable input to be less productive.
Therefore, The U shapes of ATC are directly or indirectly the result of increasing marginal returns for small quantities of output (Stage I) followed by decreasing marginal returns for large quantities of output (Stage II).
