Economies of scale exist when firms have:
A)increasing returns to scale.
B)constant returns to scale.
C)decreasing returns to scale.
D)constant marginal cost.

Question

Quizplus · Accepted Answer

Economies of scale occur when a firm experiences increasing returns to scale, meaning that as the firm increases production, the cost per unit of output decreases. This can be due to factors such as increased specialization, more efficient use of equipment, and bulk purchasing of inputs. Constant returns to scale (B) means that the cost per unit of output remains the same as production increases, while decreasing returns to scale (C) means that the cost per unit of output increases as production increases. Constant marginal cost (D) means that the cost of producing an additional unit of output remains the same, but this does not necessarily imply economies of scale. Economies of scale exist when a firm's output increases more proportionately than its inputs, which leads to decreasing average costs of production. Increasing returns to scale means that doubling all inputs will result in more than a doubling of output, leading to lower average costs per unit.

Economies of Scale Exist When Firms Have