As a firm with decreasing returns to scale technology increases its output,
A) It will experience diseconomies of scale and its average cost of production will rise
B) It will experience diseconomies of scale and its average cost of production will fall
C) It will experience economies of scale and its average cost of production will rise
D) It will experience economies of scale and its average cost of production will fall

Question

Quizplus · Accepted Answer

A firm with decreasing returns to scale will experience diseconomies of scale, meaning that as it increases its output, its average cost of production will rise due to inefficiencies that arise from scaling up production.

As a Firm with Decreasing Returns to Scale Technology Increases