If a firm increases its output and its average cost decreases,the firm is experiencing which of the following?
A) increasing marginal returns
B) diseconomies of scale
C) economies of scale
D) random luck
E) decreasing cost of marginal returns

Question

Quizplus · Accepted Answer

When the firm increases its output and the average cost decreases, it is experiencing economies of scale. This means that as production increases, the cost per unit decreases due to factors such as specialization, better utilization of resources, and increased bargaining power with suppliers. This is opposite to diseconomies of scale, where cost per unit actually increases as production increases, and is different from increasing marginal returns, which measures the additional output gained from increasing one unit of input.

If a Firm Increases Its Output and Its Average Cost