Mondo's Microbrewery is growing rapidly. As a result of achieving larger size, the firm realizes it needs to hire quite a few additional employees and upgrade its brewing and bottling equipment, which increases its average costs. The best explanation for these events is that Mondo's Microbrewery is experiencing ________ returns to scale.
A) increasing
B) constant
C) decreasing
D) first decreasing and then increasing

Question

Quizplus · Accepted Answer

Mondo's Microbrewery is experiencing decreasing returns to scale because as the firm grows and hires more employees and upgrades equipment, its average costs increase, indicating inefficiencies associated with scaling up.

Mondo's Microbrewery Is Growing Rapidly