If a firm increases output and its average total cost rises, then the firm is experiencing economies of scale.

Question

Quizplus · Accepted Answer

If the average total cost (ATC) rises when the firm increases output, it indicates that the firm is experiencing diseconomies of scale rather than economies of scale. Economies of scale occur when the ATC decreases with an increase in output, while diseconomies of scale occur when the ATC increases with an increase in output.

If a Firm Increases Output and Its Average Total Cost