Increasing returns to scale occurs when a firm's:
A)average costs of production increase as its output increases.
B)average costs of production decrease as its output increases.
C)average fixed costs increase as its output increases.
D)marginal costs increase as its output increases.

Question

Quizplus · Accepted Answer

Increasing returns to scale occur when a firm's average costs of production decrease as its output increases. This is because fixed costs are spread over a larger output, leading to a lower average fixed cost. Additionally, as production increases, firms can take advantage of economies of scale, such as bulk purchasing discounts and specialized labor, which leads to a lower average variable cost. Thus, the overall average cost decreases with increasing output, indicating increasing returns to scale.

Increasing Returns to Scale Occurs When a Firm's