With constant costs in production, specialization tends to proceed to complete specialization, but
with increasing costs, specialization will not be complete.

Question

Quizplus · Accepted Answer

When costs in production are constant, there are no disincentives to complete specialization. However, when costs increase, it becomes more costly to specialize in one particular area, so firms may prefer to diversify their production to minimize costs. Therefore, specialization tends to be incomplete in the case of increasing costs.

With Constant Costs in Production, Specialization Tends to Proceed to Complete