When an increase in the scale of production leads to higher average costs, the industry exhibits
A) diminishing returns.
B) increasing returns to scale.
C) decreasing returns to scale.
D) constant returns to scale.

Question

Quizplus · Accepted Answer

When an industry exhibits increasing average costs as the scale of production increases, it is experiencing decreasing returns to scale. This means that as more inputs are used, the proportionate increase in outputs is less, leading to higher average costs per unit.

When an Increase in the Scale of Production Leads to Higher