As a firm with decreasing returns to scale technology increases its output,
A) It will experience diseconomies of scale and its average cost of production will rise
B) It will experience diseconomies of scale and its average cost of production will fall
C) It will experience economies of scale and its average cost of production will rise
D) It will experience economies of scale and its average cost of production will fall

Question

Quizplus · Accepted Answer

A firm with decreasing returns to scale experiences diseconomies of scale as it increases its output. This means that as it produces more, its average cost of production will rise due to factors such as inefficiency and diminishing returns.

As a Firm with Decreasing Returns to Scale Technology Increases