Increasing returns to scale
A) means that output rises proportionately less than inputs, increasing per unit cost of production in the short run.
B) means that output rises proportionately more than inputs, resulting in increasing per unit costs.
C) implies that the long- run average cost curve is shifting downward.
D) has the same meaning as increasing costs of production.
E) means that output rises proportionately more than inputs, resulting in lower per unit costs in the long run.

Question

Quizplus · Accepted Answer

Increasing returns to scale means that as the scale of production increases, output rises proportionately more than inputs. This can result in lower per unit costs in the long run as fixed costs are spread over a larger output. Therefore, option E is the correct choice. Option A and B are incorrect because they suggest that the per unit costs are increasing, which is not the case with increasing returns to scale. Option C is partially correct, but it only refers to the long-run average cost curve, not the relationship between inputs and outputs. Option D is incorrect as it is not the same as increasing returns to scale.

Increasing Returns to Scale