An airline industry study recently reported, "Evidence is abundant that larger firms are not more efficient or less costly simply because they are larger.In fact, other things equal, the largest carriers tend to have a higher level of unit costs, possibly caused by the difficulties of managing an airline of large size." This means that
A)there are increasing returns to scale in the airline industry.
B)the airline industry has constant returns to scale.
C)the larger airlines are not profitable.
D)airlines are experiencing decreasing returns to scale.

Question

Quizplus · Accepted Answer

The statement suggests that larger firms face difficulties in managing their size, leading to higher unit costs. This is indicative of decreasing returns to scale, where increasing size results in diminishing efficiency and higher costs.

An Airline Industry Study Recently Reported, "Evidence Is Abundant That