When decreasing returns to scale occur:

Question

Quizplus · Accepted Answer

Decreasing returns to scale occur when an increase in inputs leads to an increase in output that is proportionately smaller. In this situation, the long-run average cost curve rises because the firm is experiencing diminishing marginal returns, which leads to an increase in cost per unit of output. Choices A, B, D, and E are incorrect because they do not reflect the relationship between returns to scale and cost curves.

When Decreasing Returns to Scale Occur