When there are increasing returns to scale, average costs must be:
A) falling.
B) rising.
C) constant.
D) falling, then rising.

Question

Quizplus · Accepted Answer

Increasing returns to scale means that as output increases, the average cost per unit decreases. This is because fixed costs can be spread out over a larger number of units, resulting in lower average costs. Therefore, when there are increasing returns to scale, average costs must be falling.

When There Are Increasing Returns to Scale, Average Costs Must