Increasing returns to scale… | Economics

Question 1 Report

Increasing returns to scale suggests that

a firm can make a profit by reducing output

a firm can make more profit by increasing output

as the producer reduces the quantity of raw materials used, the marginal product will double

as the producer increases the quantity of raw materials used, the marginal product will fall

Answer Details

Increasing returns to scale suggests that a firm can make more profit by increasing output. This means that if a firm increases all of its inputs, such as labor and capital, by a certain percentage, the output will increase by an even greater percentage. In other words, the firm becomes more efficient as it produces more, resulting in lower costs per unit of output and greater profits. This concept is opposite to the concept of decreasing returns to scale, where increasing all inputs leads to a proportionately smaller increase in output.

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Increasing returns to scale suggests that

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