When there are increasing returns to scale, average costs must
Be:
A)falling.
B)rising.
C)constant.
D)falling, then rising.

Question

Quizplus · Accepted Answer

Increasing returns to scale mean that as production increases, the average cost of producing each unit decreases. This is because spreading fixed costs (such as rent or machinery) over a larger output leads to lower average costs. Falling average costs mean that there are economies of scale, which is the definition of increasing returns to scale.

When There Are Increasing Returns to Scale, Average Costs Must