MC increases becausea. MC naturally increases as the firm nears capacity. b. labor is paid overtime wages when volume increases. c. in the short run, MC always increases. d. the law of diminishing returns takes effect.

The correct answer is letter "D": the law of diminishing returns takes effect.

Explanation:

The Law of Diminishing Marginal Returns states that as the number of a given factor increases in production it causes smaller increases in the output's costs. When it comes to Marginal Costs (MC), it represents the additional costs of adding one more unit of production. In the beginning, it implies increasing output but it rises at a diminishing rate until the costs become minimum.

Thus, the MC increases can be explained using the law of diminishing marginal returns.