Strategic complementarities may help explain business cycles because such complementarities may lead to
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) a downward-sloping labour supply curve.
E) diminishing marginal product of labour.

Question

Quizplus · Accepted Answer

Strategic complementarities create increasing returns to scale, meaning that as firms' production and investment decisions reinforce each other, the overall level of economic activity can expand rapidly during a boom and contract sharply during a recession.

Strategic Complementarities May Help Explain Business Cycles Because Such Complementarities