One reason that firms will experience increasing returns to scale is:
A) the law of diminishing marginal returns.
B) the specialization of inputs as scale increases.
C) there is some fixed input that isn't being taken into consideration.
D) large firms may be difficult to manage effectively.

Question

Quizplus · Accepted Answer

Increasing returns to scale occur when a firm's output increases at a faster rate than its inputs, resulting in lower costs per unit of output. One reason for this is the specialization of inputs, as scale increases, leading to greater efficiency and lower average costs. The law of diminishing marginal returns, option A, would not result in increasing returns to scale. Option C is not a reason for increasing returns to scale but rather a potential explanation for diminishing marginal returns. Option D is also not a reason for increasing returns to scale.

One Reason That Firms Will Experience Increasing Returns to Scale