Strategic complementarities may help explain business cycles because such complementarities may lead to
A) decreasing returns to scale.
B) constant returns to scale.
C) increasing returns to scale.
D) a downward-sloping labour supply curve.
E) diminishing marginal product of labour.

Question

Quizplus · Accepted Answer

Strategic complementarities can lead to increasing returns to scale, where the value of the product or service is enhanced with the addition of complementary goods or services. This can result in a positive feedback loop, where an increase in demand for one good leads to an increase in demand for complementary goods, driving economic growth and expansion. However, the reverse can also occur, where a decrease in demand for one good leads to a decrease in demand for complementary goods, leading to economic contraction and recession.

Strategic Complementarities May Help Explain Business Cycles Because Such Complementarities