If a firm has increasing returns to scale at all levels of output, then the
A)marginal cost for the firm declines over the entire range of output.
B)average cost for the firm declines over the entire range of output.
C)fixed costs of operation diminish to zero.
D)production technology is optimized.

Question

Quizplus · Accepted Answer

Increasing returns to scale means that as a firm increases its inputs of labor, capital, and other resources, it is able to produce more output at an increasing rate. This leads to lower average costs for the firm, as it is able to spread its fixed costs over a larger volume of output. Marginal cost may or may not decline with increasing returns to scale, depending on the shape of the firm's production function. Fixed costs do not necessarily diminish to zero, as there may be some fixed costs that cannot be avoided even with increased production. Production technology may be optimized, but this is not a necessary condition for increasing returns to scale.

If a Firm Has Increasing Returns to Scale at All