An electronic-parts manufacturer with U-shaped short-run cost curves is producing 14,000 units per month and has short-run costs as follows: ATC=$8.00, AVC $4.50, AFC $3.50, MC-$8.80 a. At this level of output, has the firm started experiencing diminishing marginal and average returns? How do you know? At this level of output, the firm has started experiencing diminishing marginal and average returns. Diminishing marginal returns correspond to increasing average fixed costs and diminishing average returns correspond to increasing average variable costs. Since the firm has U-shaped cost curves and since is greater than average fixed cost both of these costs must be increasing average total cost