If a production technology has increasing returns to scale throughout, then the marginal cost curve lies below the average cost curve throughout.

Question

Quizplus · Accepted Answer

If a production technology has increasing returns to scale, it means that increasing the amount of inputs used in production leads to a proportionally larger increase in output. This results in lower average costs as the fixed costs are spread over a greater output. The marginal cost also decreases as output increases. Therefore, the marginal cost curve will lie below the average cost curve throughout, indicating that each additional unit produced costs less on average than the previous unit.

If a Production Technology Has Increasing Returns to Scale Throughout