Question

​If your long-run costs exhibit increasing returns to scale,securing big orders leads you to:__________
A)​ Increase average costs
B) Reduce average costs
C) Keep the average costs constant
D)​ None of the above

Answer 1

Answer:

Option B, Reduce average costs, is the right answer.

Explanation:

Option B is correct because if there is an increasing return to scale that means the firm is using additional inputs and the use of these inputs increases the output in greater proportionate than the proportionate increase in inputs. Moreover, the output of the company will increase. Consequently, the total cost will also increase but the average cost of production will fall.