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

As firms increase their scale of production, they can divide and specialize their inputs, leading to increased productivity and efficiency. This allows for greater returns to scale, as output increases at a greater rate than input. The law of diminishing marginal returns explains that at some point, increasing one input will lead to decreasing marginal returns, but this is not the primary reason for increasing returns to scale. Choice C is incorrect as any fixed input would be considered in the analysis of returns to scale. Choice D may be a valid point, but it does not explain why a firm would experience increasing returns to scale.

One Reason That Firms Will Experience Increasing Returns to Scale