What is meant by the term "increasing returns to scale"?
A)it has the same meaning as increasing costs of production
B)output rises proportionately more than inputs,resulting in increasing per unit costs
C)output rises proportionately less than inputs,increasing per unit cost of production in the short run
D)it implies that the long- run average cost curve is shifting downward
E)output rises proportionately more than inputs,resulting in lower per unit costs in the long run

Question

Quizplus · Accepted Answer

Increasing returns to scale means that as the scale of production increases (i.e. all inputs are increased proportionately), output rises proportionately more than inputs. This leads to lower per unit costs in the long run due to advantages such as greater specialization, bulk buying of inputs, and better use of capital equipment. As a result, the long-run average cost curve shifts downward.

What Is Meant by the Term "Increasing Returns to Scale