Increasing returns to scale imply that:
A)average costs are constant.
B)average costs are falling.
C)average costs are increasing.
D)average costs are negative.

Question

Quizplus · Accepted Answer

Increasing returns to scale mean that a firm's production output increases by more than the percentage increase in all its inputs. This allows the firm to spread its fixed costs over a larger output, resulting in lower average costs. Therefore, average costs are falling.

Increasing Returns to Scale Imply That